This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Ark Invest CEO Cathie Wood and Berkshire Hathaway CEO Warren Buffett couldn't be any more different in their investment approaches.
Ark Invest offers investors the opportunity to invest in a number of exchange-traded funds (ETFs), many of which are weighted heavily toward speculative, unprofitable businesses. Wood's rationale is that she and her team tend to bet on high-risk, high-reward opportunities in emerging areas, such as artificial intelligence (AI) or biotech.
By contrast, Buffett's investment style leans heavily into the idea of identifying businesses that generate strong, steady cash flow and carry a high degree of brand appeal. Buffett tends to prefer industries such as insurance or consumer goods as opposed to higher-growth areas in the technology sector.
Nevertheless, Wood and Buffett do share one particular mega-cap tech stock. While it's not a core position for either portfolio, both Ark Invest and Berkshire Hathaway own shares in "Magnificent Seven" member Amazon (NASDAQ: AMZN).
Is now a good time to follow Wood and Buffett and add Amazon to your portfolio? Read on to find out.
Technology stocks are getting demolished right now
It's been a rough start to the year for technology investors. Newly instituted tariffs, in combination with fears of inflation coming back and some recent mystifying words from Federal Reserve Chairman Jerome Powell, have investors scratching their heads about the health and future prospects of the economy. Unsurprisingly, many investors are acting upon these fearful emotions and beginning to sell off stock and raise some cash for a potentially rainy day.
AI stocks have been particularly vulnerable to the ongoing sell-off in the Nasdaq Composite. This isn't too surprising, given that many of the mega-cap tech stocks pictured above have experienced meteoric rises for much of the last two years. As the chart above illustrates, shares of Amazon are down 6% on the year (as of March 26), slightly underperforming the Nasdaq index.
Despite appearances, Amazon's business is in great shape
Although the pronounced selling illustrated above may give the appearance that something at Amazon could be going poorly, the actual results couldn't be any different from such a narrative.
Last year, revenue from Amazon Web Services (AWS) increased by 18% year over year to $107 billion. This is notable for two primary reasons. First, AWS is Amazon's most profitable category among its major reportable segments. While revenue accelerated thanks to the soaring demand for more cloud infrastructure needed for rising AI workloads, operating income for AWS rocketed by 62%. These dynamics underscore that Amazon's investments in AI have so far contributed to a lucrative combination of rising revenue and widening profit margins.
The second reason investors should keep a keen eye on AWS is that it is growing at a much steeper rate than Amazon's overall business -- which grew by 11% last year.
Image source: Investor Relations.
As Amazon's free cash flow continues to compound, the company remains well positioned to keep investing in new areas that can add efficiencies across major business segments. For example, while both efforts are still relatively nascent, Amazon is aggressively incorporating robotics into their warehouses and is also working to bring custom silicon chips to the market in order to compete with Nvidia.
Both of these initiatives have the potential to bring additional efficiencies to Amazon's core e-commerce and cloud computing businesses, which makes me bullish that the company still has meaningful room for growth across its ecosystem.
Amazon stock bargain that looks primed to thrive for the long run
From a macro perspective, it's not surprising to see shares of Amazon slide in tandem with its mega-cap tech cohorts. But when it comes to more specific reasons driving Amazon's sell-off, I'm hard-pressed to buy into any bearish narratives.
While tariffs could lead to higher prices (i.e., inflation) and a situation like that could slow down demand for both consumers and corporations, thereby taking a toll on Amazon's e-commerce and cloud businesses, I think operating under the assumption that all of these things will happen in succession is short-sighted.
But don't take it just from me. Amazon's leadership has made it clear that the company is going to continue investing aggressively in AI this year despite some lingering fears over the economy from Wall Street.
AMZN PE Ratio (Forward) data by YCharts
Despite its strong trajectory, Amazon stock currently trades at a steep discount relative to historical valuations. As of this writing, the company's forward price-to-earnings (P/E) ratio of 31.7 is near a three-year low. I think now is a great opportunity for investors to mimic Buffett and Wood and scoop up shares of Amazon for an absolute bargain.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
