RBC sees a ‘risk-on’ attitude boosting internet stocks. Here are its top picks for 2024
A risk-on attitude in 2024 could create tailwinds for digital ad companies — even after Big Tech’s blockbuster year, according to RBC Capital Markets. Tech giants, including Nvidia and Meta , carried the Nasdaq Composite to a 43% gain in 2023. Although some on Wall Street are concerned that last year’s tech stock rally has pushed the sector into overbought territory, RBC thinks the 2023 “year of efficiency” means that “fundamentals in the space have never looked healthier.” The majority of tech companies still are profitable, in adjusted EBITDA terms, and have valuations still lower than their historical pre-Covid levels, according to analyst Brad Erickson. Erickson believes tech stocks will likely see more valuation sensitivity this year. “We believe a risk-on environment in 2024 may tilt companies of all sizes (anyone that advertises) to re-prioritize growth more than ’23, creating potential tailwinds for digital ad companies in our coverage with some potential cross currents/margin implications for companies/advertisers which rely on direct response digital ads to drive growth,” the analyst wrote in a Wednesday note. With this in mind, Erickson is looking for “idiosyncratic stories of acceleration, product cycles and/or outsized profitability improvements” as part of his favorite picks in the sector. Amazon is one of RBC’s favorite internet plays for 2024. This year could mark a “reacceleration” for Amazon Web Services, said Erickson. The analyst also forecasts growth possibilities from advertising through new channels and social partnerships. Generative artificial intelligence is a key tailwind for the stock, Erickson said. “We expect AMZN to gain ‘share’ in the GenAI narrative battle between itself, GOOGL & MSFT as Bedrock builds partnerships and gains more traction,” he said. The analyst expects the company’s earnings to continue to outperform due to its retail strength. Shares of Amazon are up about 1.5% in 2024 and hit a new 52-week high Thursday. Erickson has an outperform rating on the stock plus a price target of $180 per share, which assumes 17% upside from Wednesday’s close. AMZN 1Y mountain Amazon shares in the last 12 months Erickson underscored GoDaddy as another one of RBC’s top internet picks this year. He said the stock’s valuation currently “remains reasonable.” “We like GDDY on the combination of an increasingly competitive product portfolio, a structurally better customer acquisition channel and underappreciated LT operating leverage,” said Erickson. Generative AI will help GoDaddy streamline its customer acquisition process and increase internal cost efficiency, he added. Shares have slipped more than 2% so far in 2024 but are up roughly 38% over a 12-month period. Erickson rates GoDaddy as outperform and sees 18.4% upside, based on his price target of $124. GDDY YTD mountain GoDaddy stock in 2024 Pinterest is a “unique narrative” in the internet sector, owing to its initiatives to improve monetization, increasing advertising load and new products, said Erickson. The “story is somewhat appreciated, but to us, PINS has the biggest opportunity to structurally raise its value to advertisers of any digital ad player in 2024,” he noted. The stock is up 38% over the past 12 months. Erickson rates Pinterest as outperform and has a price target of $46, representing nearly 22% upside. PINS 1Y mountain Pinterest shares over the last 12 months RBC continues to like Meta , which was also one of its favorites in 2023. Even with the stock’s blockbuster year — having soared 174% in the past 12 months — Erickson thinks Meta still has room to grow. He rates the stock as outperform and sees about 8% upside from Wednesday’s close, based on his price target of $400. The analyst sees “significant opex & capex cuts which are underappreciated, suggesting upside to EPS estimates — even in the event of further macro weakness.” Meta shares are up nearly 3% so far in 2024.
