Internet Stocks In 2017: Look For Platform Leaders

“Following the post-election pull-back in large-cap internet, we begin 2017 recommending that investors opportunistically add/build positions in platform leaders,” Baird’s Colin Sebastian said in a report.

Alphabet Inc GOOG GOOGL, Amazon.com, Inc. AMZN and Facebook Inc FB appear poised to benefit from “short- and long-term secular tailwinds and disruptive innovations,” analyst Sebastian noted. He maintains Outperform ratings on these large-cap internet stocks.

Artificial Intelligence, or machine learning capabilities, will strengthen competitive barriers, Sebastian mentioned. Among the small- and mid-caps, Outperform ratings are maintained on Shutterfly, Inc. SFLY and Shopify Inc SHOP. The analyst named these two stocks as the top picks. He remained “more constructive” on Neutral-rated Yelp Inc YELP.

Top 5 Predictions for 2017

Sebastian mentioned the following themes for this year:

1. AI/Machine Learning To Go Mainstream: There will be further progress and intensifying competition in “the race toward voice-enabled virtual assistants (not just bots!), smart home devices, and more useful web-based applications,” the analyst wrote. He mentioned the key players as Alphabet, Amazon and Facebook.
2. 5G Emerges: This should be a marked improvement over 4G/LTE and should significantly boost speed and reliability of heavy internet content and applications. “We believe investors will begin to focus on beneficiaries, including Alphabet and Amazon.”
3. Continued Disruption By Cloud Services: More enterprise-level companies would migrate towards cloud services due to operating efficiency. Cloud providers may continue to invest throughout the stack. Key winners would be Amazon and Alphabet, the Baird report stated.
4. Programmatic/Online Video: Programmatic video growth would pull ad budgets faster away from traditional television. Key beneficiaries would be Alphabet and Facebook.
5. Rebound Of Internet IPOs: The analyst named the later-stage candidates as Snap, Uber, Airbnb, Spotify, Pinterest, Chewy.com, Blue Apron, Pluralsight and Credit Karma.