Amazon and Netflix are two tech giants that have seen impressive growth over the past few years, with their stocks soaring to new heights. While some may view these stocks as expensive, there are compelling reasons to believe that they are actually more reasonably valued than they appear.
The major U.S. market indexes have been on a steady upward trajectory in 2024, with the S&P 500 climbing 16% year to date and setting new records. However, the surge in growth stocks has left many investors wary of a potential pullback. Despite this, Amazon and Netflix stand out as companies with strong business momentum that could continue to drive their share prices higher.
Amazon, in particular, has been a standout performer in recent years. The company’s stock has more than doubled since the tech bear market of 2022 and recently hit an all-time high. Amazon’s success can be attributed to its focus on reducing costs in its e-commerce business and improving shipping speeds. Additionally, the company’s cloud infrastructure provider, Amazon Web Services (AWS), has seen accelerating revenue growth, driven by increased demand for AI services.
With analysts expecting Amazon’s earnings to grow by 43% this year and at a rate of 28% annually over the next five years, the stock may appear expensive with a forward P/E multiple of 40. However, given its strong earnings growth potential, the premium valuation seems justified. Amazon’s share price is likely to continue rising in line with its earnings growth, making it a promising investment for the future.
Netflix has also experienced a resurgence in recent years, bouncing back from a sharp decline in 2022 to achieve impressive growth. The streaming giant is closing in on 300 million global paid subscribers and has seen double-digit growth in memberships over the past year. Netflix’s efforts to crack down on password sharing and offer compelling content, such as live sports, have driven strong revenue growth.
With Wall Street expecting Netflix’s earnings to increase by 40% this year and grow at a rate of 24% annually over the next five years, the stock appears attractively valued with a forward P/E of 33. Given Netflix’s steady revenue streams from subscriptions and its commitment to increasing operating margins, the stock has the potential for further upside in the coming years.
In conclusion, while Amazon and Netflix may seem expensive at first glance, their strong business fundamentals and growth prospects suggest that they are actually more reasonably valued than they appear. Investors looking for long-term growth opportunities may find these tech giants to be compelling investments for the future.
Source: https://www.fool.com/investing/2024/07/22/2-top-stocks-outperform-2024/
