Goldman Sachs is selectively bullish on internet tech stocks.
Large-cap tech stocks have been on an incredible run since the 2008 financial crisis, but analysts from Goldman Sachs have reassured tech stock investors that there is still plenty of room for additional upside. A Goldman analyst team led by Eric Sheridan recently initiated coverage of 17 large-cap internet tech stocks. Goldman said certain stocks within the group still have opportunities to maintain secular revenue growth and improve margins and efficiency following extended periods of heavy investment in building scale and growing user bases. Here are Goldman’s top seven large-cap internet tech stocks to buy.
Alphabet Inc. (ticker: GOOG, GOOGL)
Sheridan says Google and YouTube parent company Alphabet is the clear industry leader in digital advertising and has an extremely impressive track record of more than a decade of at least a 20% compound annual growth rate, or CAGR. Yet even at a $1.9 trillion market cap, Sheridan says Alphabet has several potentially massive long-term growth opportunities ahead in areas such as cloud computing, autonomous vehicles, omnichannel retail, gaming and artificial intelligence. Alphabet is also a leader in mobile search, media, maps, storage and email. Goldman Sachs has a “buy” rating and a $3,350 price target for GOOGL stock.
Facebook Inc. (FB)
Facebook is the gold standard in social media. At least 2.8 billion people use one or more of its services daily, including Facebook, Instagram, Facebook Messenger, WhatsApp and Oculus. Sheridan says Facebook’s growth and engagement numbers may experience temporary pressures as the world emerges from the health crisis, but he says the company has established an early leadership position in mobile computing that is likely to persist in coming years. Also, Sheridan is bullish on Facebook’s longer-term investments in video, e-commerce, payments and augmented reality, or AR. Goldman Sachs has a “buy” rating and a $455 price target for FB stock.
Snap Inc. (SNAP)
Sheridan says Snapchat parent company Snap is one of the fastest-growing companies in Goldman’s coverage universe. After years of investment, Sheridan says Snap is on track to generate impressive growth and significantly improve user monetization over the next five years. He is particularly bullish on Snap’s leadership position in AR. Goldman projects 48% CAGR through 2023, and Sheridan says consensus analyst revenue estimates over that period are likely too low. He says Snap is on track to outpace peers in operating profit growth. Goldman Sachs has a “buy” rating and a $90 price target for SNAP stock.
Amazon.com Inc. (AMZN)
Sheridan says online retail and cloud services leader Amazon should be a “core long-term holding” for internet investors given the company still has sizable long-term growth opportunities in online shopping, cloud computing, digital advertising, streaming video and artificial intelligence computing. Sheridan says these growth catalysts should help Amazon maintain 15% revenue growth and continue to expand its margins in the coming years. In addition, Amazon’s scale, product selection and fulfillment and logistics advantages will likely help it fend off e-commerce competition, Sheridan says. Goldman Sachs has a “buy” rating and a $4,250 price target for AMZN stock.
Expedia Group Inc. (EXPE)
Expedia is the North American leader in online travel and owner of brands such as Hotels.com, Vrbo, Trivago and Travelocity. Sheridan says Expedia management was prioritizing a more streamlined, cost-effective business model even prior to pandemic disruption. He says a combination of normalized growth, structurally higher margins and potential shareholder returns gives Expedia a compelling risk profile at its current valuation. Expedia is exposed to near-term risk associated with the recovery of the global travel industry, but Sheridan projects a 17% annual CAGR through 2026. Goldman Sachs has a “buy” rating and a $185 price target for EXPE stock.
Lyft Inc. (LYFT)
Sheridan says ride-sharing company Lyft is a unique, pure-play investment in North American transportation disruption. The company also has opportunities to expand into micromobility — i.e., electric bikes and scooters — and last-mile logistics. Lyft is highly exposed to near-term volatility in travel and transportation demand, but Sheridan says the company’s core mobility business should help Lyft sustain a roughly 20% CAGR through 2026. Sheridan predicts ride-sharing demand normalization by early 2022 and says Lyft has the opportunity to expand its 17% market share in the $205 billion U.S. and Canadian ride-sharing markets. Goldman Sachs has a “buy” rating and a $64 price target for LYFT stock.
Uber Technologies Inc. (UBER)
While Lyft is primarily a play on ride-sharing, Sheridan says Uber has the potential to be the next large-cap tech platform ecosystem. In the near term, Sheridan says Uber’s price action will likely be tied closely to how well its mobility segment demand recovers and how much of its pandemic surge in delivery business will persist in a normalized environment. In the longer term, Sheridan says a shift to a subscription model could generate a flywheel effect that could significantly improve monetization. Goldman Sachs has a “buy” rating and a $64 price target for UBER stock.
Best large-cap internet tech stocks to buy:
— Facebook Inc. (FB)
— Snap Inc. (SNAP)
— Amazon.com Inc. (AMZN)
— Expedia Group Inc. (EXPE)
— Lyft Inc. (LYFT)
— Uber Technologies Inc. (UBER)
