Top FAANG Bets for 2024: Analyst Picks Alphabet and Amazon, Eyes GenAI Revolution

Needham analyst Laura Martin's top 2 FAANG picks for 2024 are Alphabet Inc GOOG GOOGL and Amazon.Com Inc AMZN.

GOOG is Martin's favorite name in Big Tech for 2024 because she expects auto, M&E (film & TV), and travel ad spending to rebound, plus political ad spending to add new dollars year-over-year.

GOOGL has said it will finally begin to deprecate cookies in Chrome beginning in 1Q24, which may disrupt ad spending across the rest of the digital advertising landscape in 2024 (which occurred when Apple Inc AAPL implemented a similar change in 4Q20), but not at GOOGL. 

Finally, both GOOGL and AMZN benefit most from GenAI.

Also Read: What's Going On With Nvidia Stock Friday?

In the long term, the analyst noted that the three cloud companies (AMZN, GOOGL, Microsoft Corp MSFT) that house the most critical LLMs (large language models) represent the next generation of innovation platforms (AAPL has the largest one today), and these three companies will ultimately take a share of revs from every new app built based on GenAI that eventually replaces 20-30% of FTEs with automation in many industries. 

In the near term, while VCs find new GenAI companies to fund and build, GOOGL and AWS/AMZN are adopting Generative AI tools fastest, which aids their Y/Y ROIC growth most in 2024.

Importantly, because the EU will regulate GenAI in 2024, according to her sources, U.S. companies that lower their cost structure by using GenAI to replace FTEs will have great success at taking market share from EU competitors by passing lower costs on to EU consumers through lower prices.

The biggest beneficiaries of the disruption caused by the Internet were U.S. companies, and it likely will again be true for GenAI, the analyst noted. 

In 2022, the U.S. represented 4% of the global population and 20% of global GDP. The analyst noted that GenAI will make the U.S. even more productive than its peers.

AMZN is Martin's second-highest-ranked FAANG stock pick for 2024 because of the GenAI advantages discussed. 

Martin's sum-of-the-parts analysis each quarter concludes that investors are getting AMZN's core e-commerce business for free. 

CEO Andy Jassy is doing a better job driving margin expansion and FCF growth. 

Also, AMZN is strategically pivoting away from being a consumer-facing company and becoming an indispensable BtoB backbone for logistics and Cloud, making AMZN vital to thousands of other companies. 

The enormous scale allows AMZN to have the lowest costs as an infrastructure partner, which gives it clear competitive advantages and considerable barriers to entry.

Source: Yahoo Finance

Martin raised the price target of AMZN to $175 from $160 and boosted Q4 EPS to $0.76 from $0.59 while maintaining revenue of $166.8 billion.
Martin reiterated the price target of GOOGL of $160, Q4 EPS of $1.60, and revenue of $85 billion.
The analyst had a Buy rating for both stocks.
GOOGL stock has gained 59% year-to-date, and AMZN gained 79%.