Top Analyst Says Amazon.com, Inc. (AMZN) Just Getting Started in Massive Growth Opportunities, Alphabet Inc (GOOGL) Has a Sharp AI/ML Competitive Edge

Amazon has a strong muscle in retail; Google's software strengths bolster its opportunity in hardware.


Colin Sebastian at Baird, one of the best performing analysts out on Wall Street is going up to bullish bat for two pivotal players in the tech sphere: Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL). Between Amazon’s Prime-eligible selection of more than 100 million items shining light on an exciting growth arc waiting for the company for the long haul and Alphabet’s latest upgraded devices showing the company has its eye on the hardware market share prize, the analyst offers insights into why these giants are worth the buy.

Colin Sebastian has a very good TipRanks score with a 78% success rate and a high ranking of #18 out of 4,695 analysts. Sebastian realizes 24.4% in his annual returns. When recommending AMZN, Sebastian earns 34.9% in average profits on the stock. When suggesting GOOGL, Sebastian gains 18.6%.

Let’s dive in:

Amazon Prime Is The Powerhouse Fuel Behind the Retail Flywheel 

After reviewing the upshot of a quarterly survey taking a closer glimpse into Amazon selection, Sebastian it out with a bullish vote on this online auction and e-commerce king, spotlighting Prime-eligible selection as a key to the company’s big gains down the line. Thanks to over 100 million items that were not Prime-eligible before now, Sebastian praises an even more valuable Prime membership that ups the company’s tech playing game.

In reaction, the analyst reiterates an Outperform rating on AMZN stock with a price target of $1,100, which represents a just under 11% increase from where the stock is currently trading.

Sebastian recognizes once again a “step-up” in merchandise eligible for Prime shipping, underscoring a 25% quarter-over-quarter rise “even as Amazon appears to manage inventory more closely in FCs.” Moreover, the analyst points out strong Private Label categories that offer further benefit to Amazon, from Sporting Goods to CSA to Baby. “Importantly, expanded Prime-eligible selection improves the value of Prime membership, and as such, reinforces our positive view of Amazon Retail’s long-term growth trajectory,” asserts the analyst.

Amazon’s long-term looks both sustainable and compelling to Sebastian, who cheers: “Prime-eligible and FBA adoption both continue long-term growth trends […] We remain encouraged by ongoing expansion of both Prime and FBA SKUs, particularly as Amazon aims to further leverage its fulfillment capabilities and potentially drive higher levels of Prime subscriptions.”

Meanwhile, though there was a bit of a third-quarter dip in domestic penetration levels, Sebastian’s Prime survey offers a reassuring glimpse into “largely improving US penetration levels.” Considering the analyst projects roughly 125 million households on the domestic front with Prime membership circling 60 million, Prime continues to be the “biggest driver of Amazon’s retail flywheel,” with membership across the globe looking at anywhere between 70 to 75 million households.

Ultimately, any short-term stumbles will dissolve with the momentum of the upcoming holidays bleeding through an exciting next year for the company, as the analyst contends: “While we expected large-cap Internet to take a breather post-Q2, we expect near-term margin concerns to give way to a more optimistic view of AMZN growth for the upcoming Holiday season and 2018. The company remains in the early stages of massive growth opportunities in Retail (<5% share), Technology (<5% share), Media/Entertainment and Shipping/Logistics.”

Wall Street backs this top analyst’s confidence on the king of e-commerce, with TipRanks analytics showcasing AMZN as a Strong Buy. Out of 34 analysts polled by TipRanks in the last 3 months, 32 are bullish on Amazon stock while 2 remain sidelined. With a return potential of nearly 20%, the stock’s consensus target price stands at $1,185.90.

Alphabet Fresh in Hardware, But AI/ML Software Is Its Secret Weapon 

When taking a moment to assess Alphabet’s standing after its recent hardware event, one thing is clear to Sebastian: “Software [is] still the star.” With Google Assistant consistently improving thanks to user input, tackling 100 million plus unique Google Assistant answers brought to the table just in the latest year alone, Sebastian remains unfazed by the tech titan’s green experience when trying to sell hardware against more seasoned rivals.

Google has an upper hand in voice, search, “predictive computing and neural networks,” argues the top analyst, who sees these as leg-ups in the hardware arena. With artificial intelligence (AI) and machine learning (ML) capabilities anchored in Google’s corner, Sebastian cannot help rooting for this titan’s hardware aspirations to take the company to the top of the leaderboard.

Between AI coupled with a one-two punch of hardware meets software in Alphabet’s hardware ramp, the analyst maintains an Outperform rating on shares of GOOGL with a $1,100 price target, which implies a close to 11% upside from current levels.

“Reflecting on Google’s hardware event, we continue to see the benefits of AI/ML in new devices, which offer Google some competitive advantages vs. Amazon and Apple,” highlights Sebastian, who points to a slew of Google upgrades, with Alphabet polishing off a Pixel 2 smartphone, Home smart speakers, Pixelbook, Pixel Buds wireless earbuds, and a new camera accessory called Google Clips that has some in the camera market already shaking.  “New devices highlight Google’s increasing ambitions in hardware, driven by the desire to take better advantage of significant advances in software (AI/ML),” the analyst explains.

Google sharpens its competitive sword with Google Assistant, which the analyst notes “remains at the core of the hardware ecosystem. […] As Google expands its product lineup to include smart home and personal computing devices, there will be new channels to collect data and improve the performance of AI/ML algorithms that run most of the Google services.”

Artificial intelligence and machine learning offered both for users’ home use as well as a convenient “on the go experience” also help Alphabet lead the tech pack, as Sebastian believes, “While Amazon’s early advantages have come in the form of widespread smart home device integration, we note the availability of a user’s digital identity across smart home, mobile, and PC devices gives Google a potential advantage in terms of usability.”

While the analyst acknowledges some challenges with “limited distribution challenges” will still confront the titan, Alphabet’s “cozier” alliance with Wal-Mart lends to a transactions-based evolution over an advertising focus that puts voice monetization front and center. Overall, the big picture is resoundingly bullish for Sebastian, who is enthusiastic to see Alphabet’s twists and turns to strengthen its hardware advantage.

The word of the Street echoes Sebastian’s conviction, as TipRanks analytics demonstrate GOOGL as a Strong Buy. Based on 30 analysts polled by TipRanks in the last 3 months, 27 rate a Buy on Alphabet stock while 3 maintain a Hold. The 12-month average price target stands at $1,095.41, marking a 10% upside from where the stock is currently trading.

  • ClarkMa

    I am 44% AMZN, 41% GOOG