JPMorgan calls Amazon and Alphabet its 'top picks' for 2024 in bet that mega-cap tech rally will continue

• JPMorgan called Alphabet and Amazon "top picks" in its 2024 outlook for internet companies.
• The bank's bullish calls on the two companies are bets that the rally in mega-cap tech stocks will continue next year.
• JPMorgan sees 21% upside and 29% upside for Alphabet and Amazon in 2024, respectively.

The outlook for internet stocks is bullish in 2024, and mega-cap tech names should continue to lead the way as they have throughout 2023, according to a Wednesday note from JPMorgan.

The bank called Amazon and Alphabet its "top picks" for next year, arguing that revenue growth should reaccelerate for the two companies while profit margins remain balanced with some room for upside.

"We anticipate our coverage universe [internet companies] will broadly re-accelerate revenue growth to more normalized levels, including mega-caps (3 of the Mag 7) returning to low double-digit percent year-over-year growth. After meaningful cost rationalization in 2023, we believe margin gains will likely be more mixed in 2024 as companies balance the top-line with growth investments," JPMorgan explained.

Amazon has the most upside of the mega-cap tech companies, according to JPMorgan. The bank set a $190 price target for the e-commerce giant, representing potential upside of 29% from current levels. For Alphabet, JPMorgan set a $160 price target, representing potential upside of 21% from current levels.

Here's why JPMorgan is so bullish on Amazon and Alphabet heading into next year.

Amazon - Overweight, $190 Price Target

JPMorgan expects Amazon to grow its total revenue by 13% from 2023 levels, supported by a jump in growth for the company's Amazon Web Services and retail divisions.

"For cloud, we model AWS growth of +17% (vs +13% in 2023) supported by strong secular growth, new workload deployment, easier year-over-year comparisons, and growing Gen AI contribution," JPMorgan said.

The bank said it estimates retail revenue growth will jump by 11% in 2024, compared to growth of 9% in 2023, driven by increased same-day delivery, growth in third-party fulfillment, and pricing power.

"In terms of profitability, we're projecting ~200 basis points of operating income margin expansion in 2024 driven by North America margins returning to mid single digit percentage levels with upside potential, improved International profitability, and modest AWS margin inflection," JPMorgan said.

Shares of Amazon have surged 75% in 2023, significantly outperforming the Nasdaq 100's gain of 50%.

Alphabet - Overweight, $160 Price Target

Alphabet is a new top pick for JPMorgan thanks to the company's "improving ad growth, bigger margin gains, and Gemini tightening the Gen AI gap."

The bank said it expects Alphabet's gross revenue to grow 11% in 2024, driven mostly by its Google Cloud division and YouTube ads.

"We expect improving Search and YouTube growth on AI ad tools, secular shift, YouTube Shorts monetization, and favorable comparisons," JPMorgan said. The bank added that it expects profit margin expansion of 175 basis points in 2024 as it continues to right-size its cost structure.

Alphabet's artificial intelligence initiatives should also help the company stand out as an AI-forward company.

"While still early, we believe Gemini Ultra represents significant innovation and should start to close the Gen AI gap as it rolls out in early 2024," JPMorgan said.

Meanwhile, JPMorgan isn't concerned about Alphabet's potential exposure to antitrust lawsuits from the US government.

"Pushback will come around Google's DOJ trials and the Play Store case, but we believe resolutions will take time and the impact could be less onerous than feared," JPMorgan explained.

Finally, JPMorgan said that Alphabet has weaker sentiment and is less owned than its mega-cap peers. That, combined with an "undemanding" valuation should set the stock up for success in 2024, according to JPMorgan.

Shares of Alphabet have jumped 49% year-to-date, slightly underperforming the Nasdaq 100's gain of 50%.