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Over the past decade, mega-cap tech stocks delivered game-changing returns for investors, thanks to a lower interest rate environment that allowed companies to fuel their expansion at a cheaper cost. But in 2022, several Big Tech stocks tumbled to trade near multi-year lows as central banks hiked interest rates to fight inflation.
Generally, when interest rates rise, the higher cost of debt creates a tighter lending environment due to higher interest payments. Moreover, 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, enterprises also had to wrestle with lower profit margins.
But long-term investors should view every major dip as a buying opportunity, especially when it comes to market leaders. As the interest rate outlook improves heading into 2024, here are three mega-cap growth stocks to buy now that provide exposure to megatrends such as artificial intelligence (AI), the metaverse, e-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 massive size, Amazon continues to grow at an enviable pace. In Q3 of 2023, its sales increased by 12%, while operating income surged 29% year over year.
While e-commerce accounts for a majority of revenue, its cloud business rakes in 60% of the operating income. Globally, public cloud market revenue is forecast to expand at a CAGR of 12.3% annually through 2028.
Amazon is also the third-largest online advertising platform in the world. In Q3, its ad sales grew by 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. Moreover, its ad sales might touch $67 billion in 2025, up from $45 billion in 2024.
Amazon is forecast to increase 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.
Out of the 41 analysts covering Amazon stock, 37 recommend “strong buy,” three recommend “moderate buy,” and one recommends “hold.” The average target price for AMZN is $172.34, which is 18% above current prices.
Meta Platforms Stock
Valued at more than $858 billion by market cap, Meta Platforms (META) stock has gained more than 178% in 2023. Meta Platforms is a social media giant and owns multiple 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 of 2023, allowing the tech giant to increase ad sales by 24% to $33.6 billion.
Meta Platforms is also investing heavily in AI to increase user engagement rates. Its forays into AI allowed Meta to improve the time users spent 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.
Out of the 38 analysts covering Meta stock, 36 recommend “strong buy,” one recommends “moderate buy,” and one recommends “strong sell.” The average target price for META is $381.11, which is 13.7% above current prices.
Salesforce Stock
The final mega-cap stock 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 expanded its revenue at a stellar CAGR of more than 25% over the past decade.
Given the softer macro environment, CRM's 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 re-accelerate to almost 11% in fiscal 2025.
Investors are optimistic about the company’s widening free cash flow, which can be deployed toward growth projects and acquisitions - such as the recent purchase of Airkit.ai. Further, there is a chance for enterprise spending to normalize in the next 12 months, making CRM a compelling option right now.
Out of the 37 analysts covering CRM, 22 recommend “strong buy,” two recommend “moderate buy,” 12 recommend “hold,” and one recommends “strong sell.” The average target price for Salesforce stock is $248.91, which is 12.5% above current prices.
