This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- Meta Platforms may be spending vast amounts of cash on projects that are far from paying off, but its profit margins are still wide.
- The growth of Amazon's cloud-computing operation isn't slowing, which will likely drive strong increases in its operating profits.
Collectively, the seven biggest technology companies in the world have come to be referred to as the "Magnificent Seven." Two of them are Meta Platforms (NASDAQ: META) and Amazon (NASDAQ: AMZN). And Wall Street believes this duo is worth buying.
Some investors may be surprised to hear that Meta Platforms and Amazon stock could still be good buys today. After all, they're each worth more than $1.5 trillion, and their share prices are up by around 460% and 630%, respectively, over the last decade. How much more upside could these two tech giants possibly have?
As it turns out, select Wall Street analysts believe that these two stocks could gain at least 20% over the next year. Whether or not the next 12 months will pan out like that, I'm not sure. But with an eye toward the longer term, I believe Meta Platforms and Amazon are both good investment ideas today.
1. Meta Platforms
At the time of this writing, Meta stock is down 20% from its all-time high. Investors don't like how much money it's spending on dubious projects. In the third quarter alone, its Reality Labs division, which includes its metaverse-related projects, reported an operating loss of $4.4 billion while generating just $470 million in revenue. Moreover, spending in its Superintelligence Labs division, which supports its artificial intelligence (AI) ambitions, continues to ramp up.
However, if any company has ample money to burn, it's Meta Platforms. Across its various apps, including Facebook, more than 3.5 billion people interact with the company daily. This makes it one of the greatest advertising businesses on Earth, which is why it delivered an incredible Q3 operating margin of 40%. This was its margin after laying out massive sums on its AI and metaverse efforts.
Indeed, Meta continues to make money hand over fist, and it's not stingy. Between share repurchases and its growing dividend, the company returned $4.5 billion to shareholders in Q3. In short, Meta's core business is stronger than ever, it's investing billions of dollars in its efforts to find new growth avenues, and it's rewarding its shareholders. This makes Meta stock hard to overlook.
Moreover, after its 20% pullback, Meta is now the cheapest member of the Magnificent Seven, trading at just 24 times next year's expected earnings. If the company continues to execute as it has been, that's a good bargain.
2. Amazon
It's hard to ignore Amazon's retail business in North America, considering that it now generates over $100 billion in quarterly sales. But that's what I want to do. Instead, I want to focus on Amazon Web Services (AWS), because that business unit accounts for two-thirds of the company's operating profits, making it extremely consequential to Amazon's overall performance. And the outlook for AWS remains incredibly strong.
AWS is Amazon's cloud computing platform. Enterprises worldwide continue to migrate their operations and data onto computers at data centers. The growth in AI workloads is only accelerating this trend. Revenues for AWS were up 20% in the third quarter, which is an incredible growth rate for a business that has an annual revenue run rate of more than $100 billion.
Growth should stay strong. Amazon ended Q3 with nearly $200 billion in performance obligations and said that the majority of that amount was related to AWS. That represents a 22% increase from the performance obligations that it had at the end of the third quarter of 2024. In short, the outlook remains bright for AWS' growth, which points to strong future profits for Amazon.
I believe that Meta Platforms stock may be the better bargain of these two today. That said, I believe that Amazon's stock performance could still be better than average. Historically, Amazon stock performs well when it posts strong growth in its operating profits. And given that its performance obligations for AWS continue to rise, it appears that its trend of rising operating profits will persist.
Meta Platforms and Amazon have each produced incredible gains in recent years. But there's no reason to believe they can't provide investors with further long-term share price growth.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
