With a new Presidential administration set to take office in less than two weeks, there’s a feeling of change in the air. Some of the changes are already clear – President-elect Trump has made clear his intent to implement new tax policies, and his previous term in office has already shown that he favors pro-business, growth-oriented economic policies, along with economic deregulation. The combination promises to keep the good times rolling in the stock markets.
Watching the situation from Wolfe Research, analyst Shweta Khajuria sees plenty of options for investors who aim to cash in on a rising tide. Sound consumer demand, lower interest rates, and low unemployment, in her view, will provide a broad base of support for the overall economy – and for her own preference, of internet stocks.
“We remain opportunistic within the Internet sector. We expect fundamentals to remain stable with healthy top-line growth from penetration gains & product launches, ongoing margin expansion, and capital allocation efforts,” Khajuria opined.
Getting into specifics, the 5-star analyst has selected Amazon (NASDAQ:AMZN) and Meta Platforms (NASDAQ:META) as two of the best internet stocks to buy right now. According to the TipRanks database, these ‘Magnificent 7’ stocks have also earned a ‘Strong Buy’ rating from the rest of the Street. Let’s dive into the details and take a closer look at each of them.
Amazon
The first stock we’ll look at, Amazon, is the world leader in e-commerce, and a fast-growing giant in both cloud computing and AI services. Amazon was founded in 1994 and has proven itself to be a survivor – the company lived through the dot-com bubble burst and has grown out of its origins as ‘the online bookseller’ to become the digital world’s one-stop shop. As the global e-commerce leader, Amazon boasts that it can deliver any product to any place, and it follows through. The result is a behemoth of a company, with a market cap of $2.39 trillion.
Amazon’s online retail is its core business, and made up 83% of its total revenue in the third quarter of 2024, the last period reported. Of its $131.4 billion revenue haul, $95.5 billion came from the North America segment; $35.9 billion came from international sales. The company saw its highest year-over-year revenue growth in its cloud computing subscription service, AWS, which expanded 19% y/y to reach $27.5 billion. Amazon’s overall Q3 revenue came to $158.9 billion, up 11% from the prior year and beating the forecast by $1.6 billion. Amazon reported a free cash flow of $47.7 billion for the 12 months ending on September 30, 2024, up 123% year-over-year, and the company finished Q3 with more than $78 billion in cash and liquid assets on hand.
What all of this means is that Amazon has deep pockets and plenty of resources to expand and modernize both its e-commerce and cloud computing activities. The company is doing just that and is making strong use of AI as it does so.
On the retail activity side, Amazon is using AI to improve its customer interfaces. The company has introduced an AI-powered shopping assistant to smooth out the process of searching the retail database for exactly the right product at the right price, and already uses AI to improve its online advertising activities. On the cloud side, Amazon is integrating AI capabilities and tools into the AWS platform and is working with the AI development company Anthropic to build generative AI models for Bedrock, Amazon’s own AI cloud platform. In addition, Amazon, under the AWS aegis, is developing and releasing a family of semiconductor chips, Trainium, designed specifically to train AI and natural language systems.
At the bottom line, all of this has made Amazon enormously profitable. The company realized earnings of $1.43 per share in 3Q24, a figure that was 29 cents better than the forecasts. In addition, Amazon’s stock is up 49% in the last 12 months, outperforming the NASDAQ’s 31% gain by a wide margin.
Checking in with analyst Khajuria and the Wolfe view, we find her bullish on Amazon, specifically citing the company’s strengths. Khajuria writes, “We named AMZN as a top pick at the time of our launch in July ’24, and we continue to remain constructive on it based on our three-pronged thesis: i) Upside to retail margins driven by operational efficiency gains, automation, Ad revenue growth, and sustainable Int’l profitability; ii) Healthy, sustainable AWS revenue growth in the HT% range driven by demand for AI-based workloads and inference, Trainium chips, and Anthropic; iii) Ongoing market share consolidation driven by fast delivery speeds and availability of non-discretionary items.”
Moving forward from this stance, Khajuria puts an Outperform (i.e. Buy) rating on AMZN stock. This is complemented by a $270 price target that implies a one-year upside potential of 21%. (To watch Khajuria’s track record, click here)
Overall, this mega-cap e-commerce giant has earned a Strong Buy consensus rating from the Street, based on 47 recent analyst reviews that show a lopsided split of 46 Buys to just 1 Hold. The shares are priced at $222.11 and their average target price of $249.62 suggests they will gain 12% in the year ahead. (See AMZN stock forecast)
Meta Platforms
The second stock we’ll look at here today is Meta Platforms, the global leader in social media and the parent company of Facebook, along with Instagram, Messenger, and WhatsApp. Meta’s family of social apps had a collective DAP, or daily active people, of 3.29 billion in September 2024 – meaning that this company can effectively reach 41% of the world’s population. That’s a huge number, and it underscores just how effective Mark Zuckerberg’s company has been at building social media into a global force.
Meta has used its unprecedented reach to support its revenue-generating activities, primarily digital advertising. The company’s huge audience gives it access to an enormous well of data, which can be used to fine-tune online advertising campaigns or simply sold to advertisers. In its last quarterly report, covering 3Q24, Meta reported an 11% year-over-year increase in the average price paid per ad on its platform. This solid metric helped push the company’s total revenue in the quarter to $40.59 billion, beating the forecast by $280 million while growing 19% year-over-year. Meta’s stock, like Amazon’s above, has outperformed the broader markets by a wide margin, gaining 73% in the last 12 months.
That Meta is successful is beyond doubt. The company has achieved this success by adapting to changes in the digital landscape – some of those changes brought on by the very social media revolution that it helped to start. One good example is the company’s reaction to the strength of Twitter, or X, as owner Elon Musk has rebranded it. Meta developed its own threads-based app, appropriately dubbed Threads, which it launched in July 2023 as a competitor. While Threads has not yet reached the popularity of X, it has reached the milestone of 200 million active users.
Meta also stands to gain from an Act of Congress which was upheld at the Federal appeals level last month. The act orders the Chinese company ByteDance to divest itself of the popular social video app TikTok – if it wants to keep the app available in the US. If the Chinese company does not comply, it risks having TikTok banned from US internet providers. While enforcement of such a ban would be difficult at best, the prospect of it may give a boost to Meta. Meta has developed several social video apps of its own (Reels and Stories on Facebook) and is strongly positioned to grab a large part of TikTok’s 170 million-strong audience should the Chinese app face a ban.
The upshot to all of this is that, while Meta may be the ‘old man’ in the rapidly evolving social media world, it is hardly moribund. The company is smart and adaptable, and has proven itself capable of meeting changing conditions while realizing sound profits. Its 3Q24 earnings figure came to $6.03 per share, beating the forecast by 74 cents and growing 37% year-over-year.
For Wolfe’s Khajuria, the key here is that Meta’s combination of social apps, its strength in video apps, and its ability to meet changing conditions make the company a ‘top pick.’ As she puts it, “We remain constructive despite the significant outperformance over the last two years given our view that Street estimates offer upside. Our thesis: i) We think video unification remains underappreciated based on our detailed analysis, we forecast upside to 2025 Street ests. by MSD $B; ii) We size Threads opportunity as potentially adding LSD $Bs with monetization starting in ’25; iii) TikTok divestiture remains uncertain, but should that happen, we see 8 to 10% upside to EPS; iv) Cleaner AI narrative as multi-year investments have better positioning to show ROIC potential.”
Bottom line, Khajuria puts an Outperform (i.e. Buy) rating on Meta, and backs that with a $730 price target, showing her confidence in a 16% upside potential over the next 12 months.
Meta has 43 recent analyst reviews on file, and these break down to 39 Buys, 3 Holds, and 1 Sell. The shares are currently trading for $617.89 and the average target price of $683.72 implies a one-year potential gain of 10.5%. (See META stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
