The companies known by the acronym “FAANG” delivered great returns in the past decade. This clique comprises Facebook parent Meta Platforms, Apple, Amazon (AMZN), Netflix, and Google parent Alphabet (GOOG) (GOOGL). However, even these tech giants haven't been able to escape the bear market we experienced last year.
No matter, bull runs are bound to come after downturns. And once the next bull market finally lands, the smart money is on these corporations to ride it. Two of these stocks, Amazon and Alphabet, look especially attractive compared to their peers considering they have performed much worse.
Here is why both of these FAANG stocks are worth investing in today.
Last year was tough for Amazon as all of its main sources of revenue took a hit due to macroeconomic factors. Consumers reined in spending due to inflation, leading to lower sales than expected for its e-commerce operations. Businesses also decreased ad spending and cut back on cloud services, affecting Amazon's advertising and cloud computing units.
The result was a rare annual net loss for the e-commerce giant, which is perhaps why it underperformed other FAANG stocks over the past year. While they have all encountered their share of problems, only Amazon had red ink on the bottom line. Fortunately, the tech giant is addressing some of its issues. Most notably, Amazon has been seeking to decrease expenses and costs with several rounds of layoffs.
These initiatives should help boost the company's efficiency and net income in the short run.
But the best reason to invest in Amazon remains its long-term prospects. Amazon Web Services (AWS), the company's cloud computing unit, is the leader in this space, offering more than 200 features. As businesses continue to migrate to the cloud, AWS' adoption and revenue will remain northbound. Companies increasingly rely on cloud solutions because they enhance productivity and efficiency while decreasing costs.
E-commerce is also on what should be a long and sustained upward path. Amazon also leads this industry. The company will continue to attract customers: It has built a solid brand name and reputation as a low-priced online retailer that offers one- and two-day shipping on thousands of items. Similarly, with its cloud business, Amazon has generally expanded the range of its services. The tech company is also involved in other industries, including video and music streaming, streaming devices, grocery shopping, and more.
Amazon's long history of successful investment speaks for itself. So even though Amazon's financial results should improve along with economic conditions, that's not the most important thing to look forward to with this company. Instead, investors should focus on Amazon's ability to find profitable avenues for growth, which, along with the industries it currently leads, will allow the company to ride the next bull market, whenever it comes.
Alphabet makes most of its money from advertising. Naturally, it has been having issues on the market for that reason alone, with investors worried about the company's prospects, at least in the short run. But there is another much-talked-about obstacle Alphabet might be facing. Namely, the rise of OpenAI's ChatGPT, a surprisingly resourceful AI chatbot that can accurately answer questions, even complex ones, and could help usher in the next step in internet search.
If Google were to lose its hold on internet search now, that would be very damaging to the company. While this issue is worth monitoring, Alphabet moved quickly to unveil its rival AI chatbot, called Bard. Yes, the unveiling of Bard was a disappointment. But the point is that Alphabet has been an adept innovator for two decades. The company is aware of this challenge to its empire and is working diligently to develop a solution.
In my view, the smart money is on Alphabet successfully doing so.
Meanwhile, the tech giant is still diversifying its revenue stream to be less reliant on Google, something it has been doing for a while. It is also one of the leaders in the cloud computing industry through Google Cloud. Alphabet is pouncing onto the rising video streaming market through YouTube. These opportunities still represent a small portion of the company's total revenue, but there is a long runway for growth ahead in both cases.
For instance, streaming accounted for just 34.3% of television viewing time in the U.S. in February. YouTube was responsible for 7.9% of that, even above Netflix's 7.3% market share — and well above Amazon Prime Video at 3%.
Perhaps YouTube isn't an apples-to-apples comparison with these services since it provides free user-generated content. However, through its main YouTube platform and YouTube TV, Alphabet should benefit from the increased switch in how people watch content. Looking at Alphabet's operations and innovative capabilities, the company is far from dead, even considering the challenge from ChatGPT. Google remains the leading search engine while the company joins the artificial intelligence frenzy and continues to diversify its operations. That's why Alphabet's stock remains a buy.
Originally published on Fool.com