The shares of Amazon and Alphabet are absolute investor favorites, as the fast-growing tech giants have been pampering their shareholders with excellent returns for several years. The strong performance of Amazon and Alphabet could continue in 2024 – at least that’s what JPMorgan analysts see.
• JPMorgan sees strong price opportunities with Amazon and Alphabet – “Top Picks”
• Amazon: Generative AI megatrend is expected to generate billions in revenue
• Alphabet: Strong ad growth and promising AI program Gemini
Despite all the stress factors and prophecies of doom, the 2023 stock market year was very strong. Tech stocks in particular celebrated a brilliant comeback after the weak previous year. They were driven by AI euphoria, which was particularly fueled by the launch of OpenAI’s ChatGPT and NVIDIA’s brilliant profit development. The weakening of inflation and the associated prospect of key interest rates falling again soon also played into the hands of tech stocks in 2023.
Despite their enormous race to catch up, the “Big Tech” companies still have a lot of room for improvement, says JPMorgan analyst Doug Anmuth. The investment expert sees the e-commerce giant Amazon and Google parent Alphabet in particular as being excellently positioned and chooses the two NASDAQ stocks as his “top picks” for the coming year. What makes Anmuth so positive?
These two factors are likely to drive Amazon and Alphabet in 2024
There are several factors behind the JPMorgan analyst team’s bullish views on Alphabet and Amazon’s 2024 performance. On the one hand, it is the AI growth prospects that should continue to give both stocks a boost in 2024. On the other hand, Anmuth predicts that consumers will remain “resilient” – despite the weakening global economy – and that consumer sentiment will continue to be at a stable level. Both Amazon’s e-commerce business and Google’s advertising sector would benefit from continued strong consumer demand.
JPMorgan expects focus on company-specific fundamentals
After the broad stock market upswing in 2023, investors will take an even closer look at the sales and profit developments of individual companies in the new year. Company-specific fundamentals are becoming a “bigger factor,” Ammunth speculates. While JPMorgan’s 2024 outlook is generally muted given many “challenges,” the growing focus on fundamentals will benefit Amazon and Alphabet. The two US companies are each in an excellent position. “For the consumer-facing Internet sector, consumer spending has proven resilient across virtually all subsectors and we believe companies have a more constructive outlook than a year ago.” Anmuth pays particular attention to the following aspects: “We generally prefer companies with solid growth, proven profitability profiles and an appropriate valuation given the current interest rate environment,” quotes “Yahoo Finance” from the JPMorgan study.
Amazon shares: “best investment idea of 2024” according to JPMorgan
Given these factors, Amazon is the “best investment idea” in 2024, according to Anmuth. The strong sales growth of Amazon’s cloud computing unit, Amazon Web Services (AWS), is particularly promising. JPMorgan expects the deployment of new workloads, easier year-over-year comparisons and a growing contribution from generative AI investments to continue to drive AWS momentum in 2024.
Amazon CEO Andy Jassy is also extremely confident about his group’s positioning in the AI sector. Bezos’ successor assumes that the technology surrounding generative AI will bring Amazon “tens of billions” in additional revenue in the coming years, as he announced at the “re:Invent” conference in early December.
Amazon back on the growth path
In fact, the earnings report for the third quarter of 2023 made it clear that Amazon is back on the growth path after a temporary period of weakness. The US group made a profit of $9.9 billion between July and September – in the same quarter of the previous year it was only $2.9 billion. Online trading in particular developed better than expected, and profitability also increased thanks to the radical austerity measures. AWS’s prospects were also convincing. In response to the strong business figures, analysts have repeatedly increased their Amazon price targets in recent months.
JPMorgan analyst Anmuth: Alphabet shares have high price potential
The JPMorgan analyst team also sees high price potential for the shares of Google parent company Alphabet: improving advertising growth, increasing margins after cost reductions and a new AI boost are the three main reasons that speak for another bull run in the share . The focus of interest here is Google’s AI software Gemini. “Although it is still early, we believe Gemini Ultra represents a significant innovation and should begin to close the Gen AI gap when it launches in early 2024,” Anmuth wrote. At the beginning of December, Google officially presented its new AI model Gemini, which is intended to overtake OpenAI’s ChatGPT in the medium to long term.
Investors have not yet fully priced in Alphabet’s strong advertising growth and AI opportunities; the search engine giant’s shares tend to be undervalued, writes Anmuth. “We believe Google has weaker sentiment and is less owned by investors than other mega-caps,” said the JPMorgan expert. Anmuth, on the other hand, sees the risks arising from Google’s antitrust proceedings as manageable. In his opinion, the effects will be “less burdensome than feared”.
Alphabet: Strong quarterly report with flaws
Alphabet’s report for the third quarter of 2023 actually showed impressive growth again: Google’s parent company’s quarterly profit jumped by more than 40 percent year-on-year between July and September to almost 19.7 billion US dollars (1.55 US dollars each share) high. The previous analyst estimate (US$1.45 per share) was exceeded.
In addition to a lot of light, the Alphabet quarterly report also revealed shadows: Alphabet was unable to meet the expectations that had been tied to the development of the cloud business. Revenues increased by 22 percent to $8.4 billion compared to the previous year. However, the division’s operating profit of $266 million was well below the expected $430 million. However, analysts, such as Brent Thill from Jefferies, mostly reacted calmly to the weak cloud development. The estimates here probably contained too high expectations for the contribution of artificial intelligence (AI), but the increasing investments in this area signaled Alphabet management’s expectations of significantly increasing sales in the future, writes Thill.
Editorial team finanzen.net
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