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For Immediate ReleaseChicago, IL – February 8, 2024 – Today, Zacks Investment Ideas feature highlights Microsoft MSFT, Amazon AMZN, Apple AAPL and Meta Platforms META.
For Immediate ReleaseChicago, IL – February 8, 2024 – Zacks Equity Research shares Meta Platforms META as the Bull of the Day and Albemarle Corp. ALB as the Bear of the Day. In addition, Zacks Equity Research provides analysis on
The so-called Magnificent Seven have pulled the curtain on their earnings results. Though most Magnificent Seven members clocked in some magnificent quarters, there was one EV maker that delivered results that can only be described as less-than-magnificent. In any case, this piece will focus on a trio of Magnificent Seven members (META, AMZN, and MSFT) that stepped up to the plate and swung one out of the ballpark, sparking an impressive rally alongside a wave of analyst price target upgrades.
Therefore, let's use
TipRanks' Comparison Tool to check in with the three aforementioned stocks that delivered and could continue to do so in the year ahead, thanks in part to a bit of help from their growing stake in artificial intelligence (AI).
Meta Platforms (
NASDAQ:META)
Meta Platforms delivered the most impressive quarterly results this earnings season, sparking one of the biggest single-day rallies in the company's history. Undoubtedly, Meta stock's more than 20% surge represented the largest-ever single-day market cap gain of $204.5 billion. Put that one in the record books.
With
a fresh dividend, AI tailwinds at its back, and the wildcard of its Reality Labs business, many analysts on Wall Street see the red-hot stock climbing even higher as it enters its dividend-paying era. All things considered, I find it hard to be any less bullish following the latest spike.
In fact,
Morgan Stanley seems to think Meta is a stock to keep buying after its blowout earnings results. The company's new AI tools are just one of the drivers that has the bank staying bullish. In a prior piece, I highlighted the potential of ad automation tool
Advantage+ and its ability to give the ad business a real shot in the arm.
Just because Meta is maturing, with a dividend to pay (0.44% yield at writing), does not mean it's steering off the growth track. If anything, Meta may be the most exciting Magnificent Seven member, given how effectively Mark Zuckerberg and his team have turned a corner following its "Year of Efficiency."
As the company moves into a year (or should I say decade) of AI, the stock certainly seems too cheap at 23.7 times forward price-to-earnings, far below most Magnificent Seven members. The lowest-hanging fruit may have been picked amid last year's efficiency push, but don't expect management to settle into cruise mode as it looks to pull ahead in the so-called AI race while keeping up with peers in the virtual- and augmented-reality scene.
What Is the Price Target of META Stock?
Meta stock is a Strong Buy, according to analysts, with 38 Buys, two Holds, and one Sell assigned in the past three months. The
average META stock price target of $522.00 implies 11.2% upside potential.
Amazon (
NASDAQ:AMZN)
Amazon stock has also been riding higher following its own slate of quarterly earnings results. The numbers were exceptional, helping power shares more than 7% higher in a single trading session. With new all-time highs in sight (around 8% away), plenty of AI rally fuel, and a strong holiday season in the books, analysts seem right on the money to stay bullish on the stock post-earnings.
Like Meta, Amazon wants to equip advertisers with the right tools. With the firm launching new privacy tools in the European market while starting ads (and a paid option to eliminate them) on its streaming service Prime Video, it seems positioned to make a growing dent in the ad market.
Indeed, Amazon's many Prime users will not be happy to have to view ads as they enjoy their paid Prime content. And though some may question the value proposition of being a Prime member (have the perks added up, or only the price hikes?), the consumer will speak with their money. For now, Prime looks sticky enough to not shed too many users due to the inclusion of ads on Prime Video.
Combine AI tools with ads, and it's no mystery as to why RBC Capital views Amazon as one of its top tech picks (one of the others is Meta) to play the digital ad market in the new year. I think they're right to praise the company as it looks to go above and beyond just being an e-commerce and cloud retailer.
What Is the Price Target of AMZN Stock?
Amazon stock is a Strong Buy, according to analysts, with unanimous 40 Buys assigned in the past three months. The
average AMZN stock price target of $207.72 implies 21.8% upside potential.
Microsoft (
NASDAQ:MSFT)
Microsoft also
stood tall following its earnings report, with investors impressed by the company's AI muscles. In many ways, Microsoft is still the AI stock to own for those who prefer to bet on software over hardware. While Microsoft is poised to gain some skin in the AI chip game, the company still remains a software titan that's likely to continue having its way with rivals.
With a Super Bowl ad for its AI software CoPilot ready to go, it will be interesting to see where adoption of the Microsoft ecosystem goes from here as more are drawn in by its impressive AI capabilities. It's hard not to be bullish, even with shares at fresh highs and a trailing price-to-earnings multiple now well above 35 times.
Apart from AI, Microsoft seems to be opening up its Xbox gaming ecosystem by sharing plans to bring its Xbox-exclusive games over to its rival console, PlayStation. Indeed, such a move could curb demand for its console while also dealing a heavy blow to the so-called "console wars."
That said, by expanding the total addressable market for its games, I view the move as a net positive, even if it rubs some Xbox gamers the wrong way. If the friendly gesture is reciprocated by Sony (the firm behind PlayStation), the move could be a net positive for both console combatants as more emphasis is placed on growth in software.
What Is the Price Target of MSFT Stock?
Microsoft stock is a Strong Buy, according to analysts, with 32 Buys, one Hold, and one Sell assigned in the past three months. The
average MSFT stock price target of $469.45 implies 13.4% upside potential.
The Takeaway
The Magnificent Seven stocks could continue higher if they continue smashing quarterly earnings this year. Undoubtedly, AI could be the magic that helps them keep pulling rabbits out of hats come future earnings seasons. Of the trio, analysts see the most upside (21.8%) in AMZN stock.
Disclosure
Software behemoth Microsoft (
NASDAQ:MSFT
) now leads as the most valuable stock in the world with a market cap of $3.08 trillion.
Less than six months ago, when I wrote about Microsoft, it was already nearing its all-time high, and I reaffirmed my bullish stance. Since then, the
stock has gained another whopping 28%. At this juncture, I reassert my bullish stance because I believe MSFT is ready to embark on another decade of supernormal returns supported by multiple growth catalysts.
Microsoft Continues to Report Upbeat Quarterly Results
On January 30, Microsoft reported upbeat Q2 results for the sixth consecutive quarter, driven by robust cloud computing momentum and strong growth across all segments.
Adjusted earnings of $2.93 per share handily beat analysts’ estimates of $2.77. Also, the figure was 26.3% higher than last year’s figure of $2.32 per share. Revenues came in at $62.02 billion, jumping 17.7% year-over-year and surpassing analysts’ estimates of $61.1 billion.
All eyes were waiting for the Cloud segment's numbers, and investors were not disappointed. The Intelligent Cloud business segment, which includes Azure Cloud, SQL Server, and Windows, among others, grew 20% year-over-year to $25.8 billion, beating expectations. Notably, Azure and other cloud services reported revenue growth of 30% (28% in constant currency), again much ahead of Wall Street's expectations.
Despite the upbeat Q2 print, Microsoft gave out an outlook that came in below expectations. Q3 revenues are expected to range between $60 billion and $61 billion versus the consensus estimate of $60.93 billion.
Cloud + AI Combination Will Continue to Drive Future Returns
AI and cloud computing will continue to complement and spur demand for each other. Further, the cloud optimization observed in 2023 due to recessionary fears is now over, and cloud computing is once again experiencing significant growth across the industry, as evidenced by reports from various companies. For instance, Amazon’s (
NASDAQ:AMZN
) AWS now reportedly stands at the cusp of a $100 billion annual run rate.
As noted above, the company saw robust growth in its Intelligent Cloud business, specifically Azure. More importantly, six percentage points of Azure's growth came from AI-related services. Furthermore, the AI-related growth rate has doubled since the previously reported quarter.
Azure AI includes AI training and other AI-related services. It's noteworthy that Azure AI now boasts 53,000 customers, with one-third being newly acquired over the past 12 months, and it's estimated to be an over
$3 billion run rate business. This once again emphasizes the huge opportunity AI presents in the coming years.
It is clear that AI will continue to drive the growth story for the “Magnificent Seven.” It's no wonder then that not just Microsoft but peers like Meta (
NASDAQ:META
), Amazon, and Alphabet (
NASDAQ:GOOG
) (
NASDAQ:GOOGL
) are increasing their investments toward AI capabilities in a big way. For the recently reported December quarter, MSFT reported a 69% jump in CapEx (including finance leases) to $11.5 billion.
Further, MSFT’s well-known collaboration with OpenAI’s ChatGPT puts the company in a very enviable AI position, much ahead of its peers. CEO Satya Nadella stated his optimism on AI, saying, "We've moved from talking about AI to applying AI at scale… we're winning new customers and helping drive new benefits and productivity gains across every sector." Therefore, AI will continue to incrementally contribute to revenues and earnings as its adoption across sectors continues to grow manifold.
On a separate note, during Q2, MSFT closed its biggest acquisition ever -- the long-due proposed acquisition of gaming software rival Activision Blizzard (
NASDAQ:ATVI
) for $69 billion. The deal will add to MSFT’s diversified revenue stream. Further, Microsoft 365 Copilot is showing steady adoption, and the company remains optimistic about its growing contribution to revenue in the coming years.
Microsoft’s Valuation Isn't Cheap but Isn’t Too Expensive
Despite being the most valuable stock in the world, Microsoft’s valuation isn't as expensive as one would think. At first glance, It may look expensive, trading at a P/E of 36x currently. Nonetheless, I believe the premium is justified, given its favorable industry-leading market position, robust margins, diversified revenue stream, and huge exposure to high-growth AI and cloud businesses.
For the sake of comparison, online retail and cloud computing giant Amazon is trading at a
P/E of 58.5x, while social networking company Meta Platforms is trading at a
31.9x P/E.
Is MSFT Stock a Buy, According to Analysts?
Surprisingly, MSFT stock hasn’t seen any significant upward movement despite upbeat Q2 earnings, mainly due to weaker-than-expected guidance. However, Wall Street analysts continue their bullish stance, with a majority having raised their price targets on the stock post-earnings. Overall, the stock commands a Strong Buy consensus rating based on 32 Buys, one Hold, and one Sell.
Microsoft stock’s average price target of $469.45 implies 13.4% upside potential from current levels.
Conclusion: Consider Buying MSFT for Its Long-Term Growth Outlook
Microsoft stock has returned around 1,200% over the past decade. I believe it will continue to generate attractive long-term returns with its leadership position in the world of AI & computing, coupled with a well-diversified portfolio and an impressive track record of solid execution. AI and cloud computing will be the frontrunners in driving outstanding growth in the next 10 years. Hence, I will buy the stock at current levels with a bullish long-term outlook.
Disclosure
The "Magnificent Seven" stocks, Apple AAPL, Microsoft MSFT, Alphabet GOOGL, Amazon AMZN, NVIDIA NVDA, Meta Platforms META and Tesla TSLA, now account for almost 30% of the S&P 500 index. They were responsible for more than 62%
Arm Holdings on Wednesday forecast fiscal fourth-quarter sales and adjusted profit above Wall Street expectations as customers aim to design new chips for artificial intelligence work (AI), generating higher royalties for the British technology firm.