We provide the latest news
from the world of economics and financeThe inflation panic took the wind out of Wall Street's sails, especially where it crosses Silicon Valley in a proverbial sense. The stocks of tech titans Amazon.com (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) took a beating as investors backed away from growth-oriented ideas.
Amazon's shares fell as much as 57% from its pre-panic record price. The Google parent's price drop stopped at 46%. Only now, more than two years later, are they sniffing at fresh all-time highs again.
I don't think this is the last hurrah from two tired comeback stories. Instead, I see Alphabet and Amazon as the two best buys in the "Magnificent Seven" group right now, with tremendous returns on the long-term horizon. You should consider grabbing some of these top-quality stocks while they're still relatively affordable.
First, I'd like to point out that Amazon and Alphabet have plenty of irons in the artificial intelligence (AI) fires. They may not be as deeply and directly involved in the frenzy for generative AI and large language models (LLMs) as Nvidia (NASDAQ: NVDA), but you're looking at two of the leading providers of cloud-based computing services.
And they are heavy users of AI tools in their daily work, too. You'll find AI behind the scenes of many consumer-facing services, from travel routes in Google Maps and Amazon's automated warehouse management to YouTube's video recommendation engine and Alexa's helpful chatter.
So I'm not saying that Amazon's and Alphabet's stocks should have tripled over the last year, like Nvidia. But their rebound from the rock-bottom pricing of the inflation crisis was slower than they deserved. I can't believe it took this long just to get back to prices last seen in November 2021.
And they're priced to keep on moving, too.
Shares of Amazon are changing hands at the bargain-bin valuation of 3.2 times sales. Alphabet's price-to-sales ratio (P/S) clocks in at 6.1. In a world where Microsoft (NASDAQ: MSFT) commands a double-digit P/S ratio and Nvidia has soared to 39 times sales, these figures strike me as big market-maker mistakes.
Of course, Wall Street had its reasons to keep Alphabet and Amazon under wraps while most of their "Magnificent Seven" peers soared.
The digital advertising market fell into a deep recession in 2022. Inflationary pressure is no joke -- consumers held on to their wallets with both hands while everybody's cost of doing business rose. That's not a great environment for launching extravagant marketing campaigns. The economic pressure has subsided in recent quarters but I'm still not talking about a full-fledged return to optimal health. So Alphabet's ad-based business has seen slower growth than usual, and the stock arguably deserves a bit of a discount under these circumstances.
The same market reality also held back Amazon's retail sales. The inflation crunch started knee-deep in the all-important holiday season of 2021. The e-commerce veteran had to cut costs, slow down its spending on the delivery infrastructure, and absorb two years of low-grade growth. Again, I see why risk-averse investors would stay away from Amazon against that backdrop.
Amazon and Alphabet, with their undaunted investments in AI and cloud computing, are not just surviving the storm but blazing their own paths through it.
The key takeaway? Investors should try to tune out the market noise and focus on the fundamentals. These tech giants look undervalued today, but that doesn't mean you should consider selling your shares to find better alternatives. On the contrary, the modest pricing is an open invitation to grab fistfuls of Alphabet and Amazon shares at a reasonable price.
In the end, no downturn lasts forever. This pair of "Magnificent Seven" beasts is prepared to truly soar when the American and global economy gets back on its feet.
The companies that drive tomorrow's innovations will deliver the most enduring returns. That's what Amazon and Alphabet do, and I can't wait to see how they will fare in the current bull market.
Should you invest $1,000 in Alphabet right now?
Before you buy stock in Alphabet, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alphabet wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of March 25, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anders Bylund has positions in Alphabet, Amazon, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.