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The Nasdaq Composite has seen a significant rise of over 20% this year, driven largely by a group of internet companies taking advantage of the artificial intelligence (AI) boom and various industry trends. As the next earnings season approaches, Citi analysts have identified a few key stocks with the potential to outperform, while highlighting one stock to approach with caution.
After engaging with a wide range of investors across the U.S. and Europe, Citi reported that sentiment remains largely optimistic for internet companies, especially those involved in online advertising, e-commerce, ride-sharing, and food delivery services.
Though Citi didn't issue traditional Buy, Hold, or Sell ratings, they identified Meta Platforms (the parent company of Facebook), Amazon, and Uber as standout stocks that could capitalize on emerging trends.
Conversely, Alphabet (Google's parent company) appears to be in a more challenging position, particularly in light of a lawsuit from the U.S. Department of Justice and intensifying competition. Citi emphasized that Alphabetâs competitive advantage may be diminishing due to the rise of generative AI and the slow adoption of its AI chatbot, Gemini.
Despite these challenges, Citi pointed out that Alphabet's valuation remains appealing, and it considers the likelihood of a company break-up to be relatively low, even in light of the recent antitrust rulings.
Meta is viewed most favorably among digital advertising platforms, with analysts impressed by its focus on new product offerings and advancements in AI technology. Citi noted that Metaâs efforts in these areas make it an appealing choice for investors looking to capitalize on the future of online advertising.
Another key player in the online advertising space, Reddit, has gained significant attention. Citi noted that Redditâs initiatives, such as expanding machine translation to 35 more countries and introducing new advertising units and tools, could drive revenue growth and improve profitability.
Looking ahead to early 2024, Citi predicts that generative AI tools will drive greater engagement with online ads, boost customer service, and enhance conversion rates, benefiting companies like Amazon, Meta, and Reddit.
Citiâs outlook for Amazon remains optimistic heading into the final quarter of 2024. The analysts expect growth in Amazon Web Services (AWS) driven by generative AI, along with the continued expansion of retail margins as e-commerce captures a growing share of the retail market.
According to FactSet, 95% of analysts covering Amazon have assigned a Buy-equivalent rating to the stock. This compares to 86% of analysts who have a Buy rating on Meta, and 61% on Reddit.
For Uber, Citi reported that investor sentiment has improved following the companyâs announcement of partnerships with autonomous vehicle firms such as WeRide, Waymo, and Cruise. These collaborations aim to make self-driving cars available through Uber's platform, signaling a potential shift in the ride-sharing industry.
However, Uber remains focused on the competitive threat posed by autonomous vehicles, especially Tesla's robotaxis. Teslaâs upcoming event on October 10 is expected to shed light on the implications of increased self-driving car adoption for Uber and similar companies.
Uberâs stock is currently trading around $75 per share, having risen 22% this year. Out of 55 analysts covering the company, 89% have assigned a Buy rating to Uber.
Food delivery company DoorDash is another potential up-and-comer, though it hasnât received as much bullish support as Uber. Currently, 65% of analysts rate DoorDash as a Buy. However, sentiment around the company is improving, with increasing discussions about order growth, the companyâs differentiated restaurant supply, and improvements in its driver network and operational efficiency.
In conclusion, Meta, Amazon, and Uber emerge as the top stocks to watch as the next earnings season approaches, with each company well-positioned to leverage industry trends like AI and e-commerce. Alphabet faces challenges but retains strong potential due to its attractive valuation, while DoorDash is an up-and-coming player in the food delivery sector. Investors would do well to keep an eye on these key players as they navigate the ever-evolving landscape of the internet and technology industries.