Data is believed to be the oil of the 21st century, fueling a revolution into absolutely complex and wonderful industries like artificial intelligence (A.I.), clean energy engineering and development and even insights into more effective healthcare. I mean look at the record-bre
The stubbornly high inflation is keeping investors worried about an impending recession. Several investors consider
mega-caps, which are stocks of companies with a market capitalization of over $200 billion, as safer bets during uncertain times. Mega-caps are generally large, well-established companies with a solid track record. Using
TipRanks’ Stock Comparison Tool, we pit Microsoft (
NASDAQ:MSFT
), Amazon (
NASDAQ:AMZN
), and Costco (
NASDAQ:COST
) against each other to pick analysts’ favorite mega-cap stock.
Microsoft (NASDAQ:MSFT)
Microsoft has been gaining a lot of attention since it announced its decision to invest $10 billion in OpenAI, the creator of the popular
artificial intelligence (AI) tool
ChatGPT. Moreover, the company recently
released its AI-powered Bing search engine and Edge browser.
Microsoft’s AI ambitions and other growth prospects make it an attractive long-term investment, even as macro pressures are impacting the company’s performance over the near term. Particularly, the weakness in the PC market hit the company’s More Personal Computing business in the December quarter and is also expected to drag down the overall
revenue in the current quarter (Q3 FY23).
Also, Microsoft expects its Azure
cloud growth to decelerate further in the current quarter. That said, the company is positive about the future potential of its AI initiatives and Azure cloud platform.
Is Microsoft Stock a Buy or Hold?
Wells Fargo analyst
Michael Turrin feels that the new OpenAI-powered features for Bing and Edge will boost share gains in search, browser, and advertising, and support AI-enabled innovation across Microsoft’s products. Turrin reiterated a Buy rating on Microsoft with a price target of $300.
Wall Street has a Strong Buy consensus rating for Microsoft, backed by 25 Buys, three Holds, and one Sell. At $291.63, the average
MSFT stock price target implies 13% upside.
Shares have risen nearly 8% since the start of this year.
Amazon (NASDAQ:AMZN)
Amazon’s
net sales grew nearly 9% in Q4 2022, fueled by 13% rise in the North America segment retail sales and 20% growth in the cloud computing Amazon Web Services unit, partially offset by an 8% decline in its International segment sales.
While
Amazon’s Q4 sales topped expectations, the company’s Q1 2023 sales guidance disappointed Wall Street. The company expects its Q1 sales growth in the range of 4% to 8%, which reflects a slowdown in the top-line growth compared to the fourth quarter.
Lower consumer spending due to macro pressures and inflation have been weighing on Amazon’s retail business. Additionally, a slowdown in enterprise spending is causing a deceleration in the growth of the high-margin AWS business. Nevertheless, the company is taking the required measures to navigate the ongoing challenges and is well-positioned for long-term growth.
What is the Price Target for
Amazon Stock?
Despite the near-term headwinds, Morgan Stanley analyst
Brian Nowak remains bullish about Amazon and continues to call it his top pick.
Nowak expects Amazon’s retail EBIT (earnings before interest and taxes) to continue to improve, driven by better “fulfillment and shipping cost per unit economics as AMZN grows into its logistics overbuild.”
Nowak expects AWS
revenue to “trough in the mid single digit [year over year] growth range by end of 2Q, early 3Q” before accelerating slightly in Q4 2023. He expects AWS to grow 19% in 2024. Nowak reiterated a Buy rating for AMZN with a price target of $150 despite a cautious view about the company’s international retail sales.
Overall, with 36 Buys and two Holds, Amazon earns a Strong Buy consensus rating. The average
AMZN stock price target of $137.05 implies 41% upside potential.
Shares have advanced nearly 16% year-to-date.
Costco (NASDAQ:COST)
Wholesale retailer Costco is considered to be one of the most consistent retail players that has displayed its strength over several recessionary periods in the past. Costco currently operates 848 membership-only warehouses, including 584 in the U.S., as well as several e-commerce sites.
Over the years, Costco has won a loyal customer base due to its affordable prices and high-quality, extensive range of merchandise offerings. At the end of the Q1 FY23 (ended November 20, 2022), Costco's member renewal rates were 93% in the U.S. and Canada and 90% worldwide.
Earlier this month, Costco reported upbeat
sales for the four weeks ended January 29, 2023, despite persistent weakness in its online sales. January net sales grew 6.9%, with comparable sales rising 5.6%.
What is the Prediction for Costco Stock?
Oppenheimer analyst
Rupesh Parikh feels that Costco's January sales report is in line with the business momentum seen prior to the soft November figures, where "trends hovered in the low to mid-30s on a three-year stacked basis."
Parikh noted that the performance of food categories continued to offset challenges in certain non-food categories, such as consumer electronics, in January. The analyst reiterated a Buy rating for Costco but continued to project a bumpy ride ahead due to Wall Street’s "aggressive" estimates. Parikh believes that a hike in its membership fees and a special dividend could act as positive catalysts.
Wall Street is cautiously optimistic about Costco, with a Moderate Buy consensus rating based on 18 Buys and seven Holds. The average
Costco stock price target of $558.17 suggests nearly 10% upside.
Shares have risen over 11% so far this year.
Conclusion
Microsoft, Amazon, and Costco are three mega-caps that have strong track records, with the ability to deliver solid financials in the years ahead. Currently, Wall Street is more bullish about Amazon and sees higher upside potential in the stock compared to Microsoft and Costco. Amazon’s leadership in the e-commerce and cloud computing markets is expected to fuel its future growth.
As per TipRanks’ Smart Score System, Amazon scores a nine out of 10, which indicates that the stock could outperform the broader market over the long term.
Disclosure
Don't call it a comeback, but after suffering through a terrible 2022, growth stocks are leading the market higher. Consider the year-to-date performance between the Vanguard Value ETF and the Vanguard Growth ETF to see how growth has outperformed.
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