Needham analyst Laura Martin has revealed her top two FAANG picks for 2024, naming Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) and Amazon.com Inc (NASDAQ: AMZN) as her favorites. Martin believes that GOOG is the standout name in Big Tech for 2024 due to expectations of a rebound in auto, M&E (film & TV), and travel ad spending, as well as an increase in political ad spending. Additionally, GOOGL’s decision to deprecate cookies in Chrome from 1Q24 may disrupt ad spending across the digital advertising landscape, but not at GOOGL itself. Both GOOGL and AMZN are expected to benefit greatly from GenAI.
Looking ahead, Martin notes that the three cloud companies housing the most critical LLMs (large language models) – AMZN, GOOGL, and Microsoft Corp (NASDAQ: MSFT) – represent the next generation of innovation platforms. These companies are likely to take a share of revenue from every new app built based on GenAI, which could eventually replace 20-30% of FTEs with automation in various industries. In the near term, GOOGL and AMZN are leading the way in adopting Generative AI tools, which will contribute to their year-over-year ROIC growth in 2024.
Martin also highlights the potential for U.S. companies to gain market share from EU competitors by using GenAI to lower their cost structure and pass on the savings to EU consumers through lower prices. Historically, U.S. companies have been the biggest beneficiaries of disruptions caused by the Internet, and Martin believes this trend will continue with GenAI. She predicts that GenAI will make the U.S. even more productive than its peers.
As for AMZN, Martin ranks it as her second-highest FAANG stock pick for 2024 due to its GenAI advantages. She notes that AMZN’s core e-commerce business is essentially being given to investors for free based on her sum-of-the-parts analysis. CEO Andy Jassy’s efforts to drive margin expansion and FCF growth have been successful, and AMZN is strategically shifting towards becoming an indispensable BtoB backbone for logistics and Cloud. Its massive scale allows AMZN to offer the lowest costs as an infrastructure partner, giving it a clear competitive advantage and significant barriers to entry.
Martin has raised the price target of AMZN to $175 from $160 and increased Q4 EPS to $0.76 from $0.59, while maintaining revenue at $166.8 billion. She has also reiterated the price target of GOOGL at $160, Q4 EPS at $1.60, and revenue at $85 billion. Martin maintains a Buy rating for both stocks. Year-to-date, GOOGL stock has gained 59%, while AMZN has seen a 79% increase.
Source: Yahoo Finance