The internet sector is booming, fueled by rapid global digital adoption, accelerated digitalization, and the rise of smart infrastructure. With AI advancements revolutionizing data processing, automation, and user experiences, the sector offers significant growth potential. Amid this backdrop, buying fundamentally strong AI stocks could be wise: Meta Platforms, Inc. (META) and Alphabet Inc. (GOOGL).
AI has transformed the internet and social media by automating content creation, ad targeting, and moderation, enhancing user engagement through personalized, interactive content. AI tools help brands create tailored campaigns, streamline processes, and monitor customer sentiment.
Moreover, these advancements have boosted the internet market by driving innovation, efficiency, and user-centric experiences, making AI a key factor in its growth. Notably, the global internet service market size is projected to reach $766.08 billion by 2032, exhibiting a CAGR of 4.4%, highlighting a strong market with promising investment opportunities.
Furthermore, according to Statista, the artificial intelligence market is projected to reach $184 billion in 2024, with a 28.46% CAGR, growing to $826.7 billion by 2030. Hence, as AI adoption rises, internet companies leveraging it can offer strong returns, making AI stocks potential game-changers for investors seeking long-term gains in a tech-driven market.
Considering these conducive trends, let’s look at the fundamentals of the two above-mentioned Internet stocks, beginning with number two.
Stock #2: Meta Platforms, Inc. (META)
META engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. It operates in two segments, Family of Apps and Reality Labs.
In terms of the trailing-12-month EBIT margin, META’s 41.21% is 358.1% higher than the 9% industry average. Its 34.34% trailing-12-month net income margin is considerably higher than the 3% industry average. Likewise, the stock’s 19.28% trailing-12-month Capex / Sales is 446.9% higher than the 3.53% industry average.
META’s revenue for the second quarter ended June 30, 2024, increased 22.1% year-over-year to $39.07 billion. Its income from operations grew 58.1% from the previous year’s quarter to $14.85 billion. For the same period, the company’s net income amounted to $13.47 billion, or $5.16 per share, up 72.9% and 73.2%, respectively, over the prior-year quarter.
Street expects META’s EPS and revenue for the quarter ending September 30, 2024, to increase 19.6% and 17.5% year-over-year to $5.25 and $40.13 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 71.8% to close the last trading session at $524.12.
META’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #16 out of 53 in the B-rated Internet industry. It has an A grade for Quality and Sentiment. Click here to see META’s Growth, Value, Momentum, and Stability ratings.
Stock #1: Alphabet Inc. (GOOGL)
GOOGL offers various products and platforms in the United States, Europe, the Middle East, Africa, Asia-Pacific, Canada, and Latin America. It operates through its Google Services, Google Cloud, and Other Bets segments.
In terms of the trailing-12-month net income margin, GOOGL’s 26.70% is 790.4% higher than the 3% industry average. Its 30.87% trailing-12-month Return on Common Equity is 859.5% higher than the 3.22% industry average. Moreover, its 21.13% trailing-12-month Return on Total Assets is significantly higher than the 1.22% industry average.
GOOGL’s revenues for the second quarter that ended June 30, 2024, increased 13.6% year-over-year to $84.74 billion. The company’s income from operations rose 25.6% from the year-ago value to $27.43 billion.
Its net income and EPS rose 28.6% and 31.3% over the prior-year quarter to $23.62 billion and $1.89, respectively. Also, its company’s cash and cash equivalents came in at $27.23 billion as of June 30, 2024, compared to $24.05 billion as of December 31, 2023.
For the quarter ending September 30, 2024, GOOGL’s EPS and revenue are expected to increase 18.5% and 12.5% year-over-year to $1.84 and $86.27 billion, respectively. It surpassed the consensus EPS estimate in each of the trailing four quarters. The stock has gained 18.8% over the past nine months to close the last trading session at $157.46.
GOOGL’s POWR Ratings reflect its bright outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #9 in the Internet industry. It has a B grade for Stability, Sentiment, and Quality. To access additional grades for GOOGL’s Growth, Value, and Momentum, click here.
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GOOGL shares were trading at $157.70 per share on Monday afternoon, up $0.24 (+0.15%). Year-to-date, GOOGL has gained 13.17%, versus a 19.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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