The Outlook for Internet Stocks in 2024: JPMorgan’s Bullish Call on Amazon and Alphabet

Introduction

According to a Wednesday note from JPMorgan, the outlook for internet stocks in 2024 is bullish, with mega-cap tech names expected to continue leading the way, just as they did in 2023. The bank has identified Amazon and Alphabet as its "top picks" for next year, citing the potential for revenue growth and balanced profit margins.

Amazon: Overweight, $190 Price Target

JPMorgan is particularly optimistic about Amazon's prospects for next year. The bank expects the company to achieve a 13% increase in total revenue compared to 2023 levels. This growth will be driven by the strong performance of Amazon Web Services (AWS) and the retail divisions.

In terms of AWS, JPMorgan projects a growth rate of 17%, supported by factors such as strong secular growth, new workload deployment, easier year-over-year comparisons, and the increasing contribution of Generation AI (Artificial Intelligence).

Furthermore, JPMorgan anticipates an 11% increase in retail revenue for Amazon in 2024, propelled by factors such as same-day delivery, growth in third-party fulfillment, and pricing power. The bank also expects a margin expansion of approximately 200 basis points in operating income for the company in 2024.

With a $190 price target, JPMorgan sees a potential upside of 29% for Amazon from current levels. The stock has already soared by 75% in 2023, outperforming the Nasdaq 100's gain of 50%.

Alphabet: Overweight, $160 Price Target

Alphabet is another top pick for JPMorgan. The bank is optimistic about the company's improving ad growth, increasing profit margins, and the advancements made by its artificial intelligence division, Gemini.

JPMorgan expects Alphabet's gross revenue to grow by 11% in 2024, primarily driven by the Google Cloud division and YouTube ads. The bank also anticipates a profit margin expansion of 175 basis points for Alphabet in 2024, as the company continues to optimize its cost structure.

Furthermore, Alphabet's artificial intelligence initiatives, particularly the Gemini Ultra project, are expected to position the company as a leader in AI technology. JPMorgan believes that Gemini Ultra will help Alphabet close the gap in AI capabilities.

Despite potential antitrust lawsuits from the US government, JPMorgan remains confident in Alphabet's resilience. The bank believes that any impact from these lawsuits will be less severe than anticipated.

In terms of sentiment and ownership, JPMorgan notes that Alphabet has weaker sentiment and is less owned compared to other mega-cap peers. This, combined with an "undemanding" valuation, sets Alphabet up for potential success in 2024.

Shares of Alphabet have recorded a 49% year-to-date increase, slightly underperforming the Nasdaq 100's gain of 50%.

Conclusion

With a bullish outlook for internet stocks in 2024, JPMorgan has identified Amazon and Alphabet as its top picks. The bank expects revenue growth for both companies and believes that they will continue to lead the way in the ever-evolving digital landscape. While Amazon offers significant upside potential, Alphabet stands out with its improving ad growth and AI initiatives. Investors will be watching closely to see if these predictions come to fruition.

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By: mfox@businessinsider.com (Matthew Fox)
Title: The Outlook for Internet Stocks in 2024: JPMorgan’s Bullish Call on Amazon and Alphabet
Sourced From: markets.businessinsider.com/news/stocks/stock-market-2024-outlook-amazon-alphabet-top-picks-jpmorgan-amzn-2023-12
Published Date: Wed, 13 Dec 2023 19:56:38 +0000