Trillion-dollar companies represent the pinnacle of success in the corporate world. But not all of these corporate behemoths make equally compelling investments today. This article makes the case for two U.S. tech giants to outperform in 2024 and deliver strong returns: Amazon and Alphabet.
An Exclusive Club With High Barriers to Entry
Reaching a $1 trillion market valuation is rarefied air even in the uppermost echelons of elite publicly traded corporations. The U.S. is home to virtually all existing members of the trillion-dollar club, with Saudi Aramco serving as the lone exception thus far.
Apple led the way as the first U.S. company to eclipse the magic figure, later becoming the first to $2 trillion and $3 trillion as well. In 2022, it was one of only five U.S. titans still retaining 13-digit market caps amid plunging tech valuations, alongside Microsoft, Alphabet, Amazon and semiconductor leader Nvidia.
Both Tesla and Meta Platforms entered the club in 2021 when growth stocks were all the rage, only to stumble below the threshold in 2022’s brutal bear market. Even e-commerce pioneer Amazon briefly dipped below $1 trillion last year as its shares were cut in half.
2023’s Nascent Rally Brings Shift in Fortunes
The early stages of 2023 have ushered in improving macroeconomic conditions and a rally in battered growth shares. While Tesla and Meta have yet to reclaim lost ground, Amazon has stormed 75% higher. A new entrant has also emerged in Nvidia, becoming the first chip designer to reach such elite financial status.
Predicting which of these tech titans will deliver market-beating upside for investors in 2024 requires assessing financial attributes like revenue growth, margins, valuations and total addressable market opportunities. By these criteria, Amazon and Google parent Alphabet rise above their peers as the most compelling trillion-dollar stocks for the coming year.
The Case for Amazon
Few companies can match the size, scale and dominance Amazon has achieved across e-commerce and enterprise cloud services. Its AWS cloud division alone is bigger than the next three competitors combined. After growth slowed in 2021, revenue is expected to accelerate back into the double digits in 2024 based on the ongoing resilience of American consumers and businesses.
After Prioritizing Growth, Time to Harvest Profits
During its meteoric rise after going public 25 years ago, Amazon relentlessly reinvested profits into capturing market share and expanding into new verticals. That long runway for growth has produced commensurate top-line results, but lagging profitability compared to Big Tech peers.
With e-commerce adoption maturing across Western markets, Amazon’s strategy is shifting from land grab to profit harvesting mode. The company has raised Prime subscription prices, added a new ad-supported content tier for Prime Video, reduced headcount through mass layoffs and made supply chain/logistics improvements.
These measures drove operating margins back to early 2021 levels last quarter. Further enhancements are likely in 2024, sending cash flows gushing as the company squeezes more profits from its leading market positions.
Consumers and Businesses Won’t Quit Amazon
Landing page improvements and personalization keep users engaged on its ubiquitous e-commerce platform. Recommendation algorithms leverage surging volumes of shopping data to drive purchasing and brand loyalty.
Amazon’s consumer reach also provides it negotiating leverage over suppliers, supporting wider profit margins.
Meanwhile its AWS cloud segment holds a commanding market share of over 30% by sustaining relentless innovation and a broad/deep product portfolio.
Cloud adoption remains in early innings as more workloads migrate from on-premise data centers, promising years of robust growth ahead. Amazon’s first mover status in the space will help it continue riding this secular tailwind.
Attractively Valued Relative to Earnings Power
Despite rallying 75% off 2022 lows, Amazon remains nearly 30% below its mid-2021 peak valuation near $1.8 trillion. After years of elevated spending on fulfillment/logistics build-out and new projects suppressed net earnings, profits are inflecting higher on operating leverage.
Its forward P/E multiple of 44 may seem lofty in absolute terms but looks reasonable relative to reaccelerating earnings growth in the forecast period. Cash flows over $20 billion on a trailing 12-month basis also showcase the company’s inherent earnings power.
In short, Amazon offers investors a rare opportunity to buy a dominant industry leader at the early stages of significant margin expansion just as revenue growth is recharging. That powerful combination can drive substantial upside for shares in 2024.
Alphabet: Search Dominance Underappreciated
Google’s parent company Alphabet faces no shortage of perceived headwinds. Critics point to intensifying competition in online advertising from TikTok, the threat of lost search market share to Microsoft’s invigorated Bing search engine and disappointment over Google Cloud’s third quarter growth metrics.
Yet analyzing each concern more deeply reveals underappreciation for the durability of Alphabet’s dominance in online search and advertising – which still accounted for over 80% of its nearly $70 billion in Q3 revenues. Investors fixated on competitive threats risk overlooking Alphabet’s strengths.
YouTube Monetization Upside Overlooked
Alphabet is furthest ahead in developing new advertising formats for emerging platforms like YouTube Shorts and enhancing YouTube’s subscription potential. Management envisions YouTube generating as much annual revenue as Netflix by 2025. Premium ad-free subscription tiers also represent untapped monetization upside.
AI Focus Shouldn’t Distract From Cash Cow
Markets are clearly enamored with Microsoft’s splashy AI advancements today, but overlooking steady enhancements by Google could prove short-sighted. Alphabet generates over $50 billion in annual free cash flow it can reinvest into AI R&D to defend search share over time.
Its existing advertising business throws off substantial profits to fund these investments, providing a buffer as it harnesses AI/ML technology to retain search dominance. Critics shouldn’t conflate a short-term PR win for Microsoft with an enduring loss of leadership by Alphabet.
Sentiment Discouraging in Face of Double-Digit Growth
It’s easy for negative sentiment to obscure the reality of Alphabet’s fundamental performance. Revenue expanded 10% year-over-year in Q3 – no small feat for a business its size. Wall Street forecasts call for double-digit revenue growth resuming in 2024 alongside steadily rising cash flows.
Trading at 21x forward earnings compared to its five-year average multiple above 25x, the market is applying a discounted valuation multiple to Alphabet’s reliably growing cash flows. That creates an attractive buying opportunity for long-term investors before momentum returns to this FAANG stock.
The Bottom Line
The five American companies retaining trillion-dollar valuations represent some of the most successful and influential businesses ever built. But compelling arguments can be made that Amazon and Alphabet appear particularly well-positioned for sustainable growth and expanding profitability in 2024.
Savvy investors would be wise to exploit naysayer fears overblown by negative headlines to build positions in these industry leaders at reasonable valuations. Their patience is likely to be rewarded with market-trouncing returns when the market’s viewpoint shifts back in their favor.