Over the past decade, mega-cap tech stocks have delivered game-changing returns for investors, thanks to lower interest rates that have allowed companies to fuel their expansion at a cheaper cost. But in 2022, several Big Tech stocks fell to trade near multi-year lows as central banks raised interest rates to fight inflation.
In general, when interest rates rise, the higher cost of debt creates a tighter lending environment due to higher interest payments. In addition, it reduces the spending capacity for individuals and households, which will then impact the top line of companies. As inflation touched 40-year highs in 2022, businesses also had to contend with lower profit margins.
But long-term investors should view every major dip as a buying opportunity, especially when it comes to market leaders. Like the interest rate outlook is improving heading into 2024, here are three mega-cap growth stocks to buy now that provide exposure to megatrends such as artificial intelligence (AI)the metaversee-commerce, and enterprise software.
Amazon Stock
Amazon.com ( AMZN ) is the world’s largest e-commerce platform, but also leads other verticals, including cloud computing, online streaming and digital advertising.
Despite its enormous size, Amazon continues to grow at an enviable speed. In Q3 of 2023, its sales increased by 12%, while operating income increased 29% year over year.
While e-commerce accounts for a majority of revenue, its cloud business generates 60% of operating income. worldwide, Revenue from the public cloud market is expected to expand at a CAGR of 12.3% annually until 2028.
Amazon is also the third largest online advertising platform in the world. In Q3, its ad sales grew 26% to $12 billion. Its ad sales growth has outpaced market leaders in recent years, including Alphabet ( GOOGL ) and Meta Platforms ( META ), due to the higher purchase intent of Amazon customers. In addition, its advertising sales could touch $67 billion in 2025, up from $45 billion in 2024.
Amazon is forecast to grow adjusted earnings to $3.26 per share in 2024, compared to a loss of $0.27 per share in 2022. So, AMZN is priced at 44x forward earnings, which might seem steep.
Of the 41 analysts covering Amazon stock, 37 recommend a “strong buy,” three recommend a “moderate buy,” and one recommends a “hold.” The average target price for AMZN is $172.34, which is 18% above current prices.
Shares of Meta Platforms
Valued at more than $858 billion by market cap, Meta Platforms (META) shares have gained more than 178% in 2023. Meta Platforms is a social media giant and owns several platforms, including Facebook, Instagram, WhatsApp and Messenger.
The number of monthly active users on these social media platforms rose by 7% to 3.96 billion in Q3 2023, allowing the tech giant to increase advertising sales by 24% to $33.6 billion.
Meta Platforms is also investing heavily in AI increase user engagements. Its forays into AI allowed Meta to improve the time spent by users on Facebook and Instagram by at least 6% year over year in Q3.
And, priced at 20.8 times forward earnings, META is quite cheap, given its stellar growth forecasts.
Of the 38 analysts covering Meta stock, 36 recommend a “strong buy,” one recommends a “moderate buy,” and one recommends a “strong sell.” The average target price for META is $381.11, which is 13.7% above current prices.
Shares of Salesforce
The final mega-cap on my list is Salesforce (CRM), currently down 29% from all-time highs — but still up more than 66% year to date.
Salesforce is the undisputed leader in the CRM (customer relationship management) market. Due to its leading market share, CRM has expanded its revenue at a stellar CAGR of over 25% over the past decade.
Given the softer macro environment, CRM sales are forecast to grow by just 2% year over year in fiscal 2024 (ending in January). As the economy improves, sales growth is expected to accelerate to nearly 11% in fiscal 2025.
Investors are optimistic about the company increasing free cash flowwhich can be deployed to growth projects and acquisitions – such as the recent purchase of Airkit.ai. Further, there is an opportunity for enterprise spending to normalize in the next 12 months, making CRM a compelling choice now.
Of the 37 analysts covering CRM, 22 recommend a “strong buy,” two recommend a “moderate buy,” 12 recommend a “hold,” and one recommends a “strong sell.” The average target price for Salesforce stock is $248.91, which is 12.5% above current prices.
As of the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.