Evercore ISI Analyst Upgrades Shopify, Cuts Amazon, in Large-Cap Internet Outlook
With the second-quarter earnings season heating up, industry analysts are taking a fresh look at the large-cap internet sector. Evercore ISI’s Mark Mahaney, renowned for his expertise in internet research, has updated his list of tactical calls, offering insight into his outlook for some of the biggest names in the space. While Mahaney maintains a "compound constructive" stance for the rest of the year, he believes the recent surge in the broader tech sector has largely removed room for further significant growth in valuations. However, he sees sustainable levels of profitability driving the sector forward, with continued demand and margin expansion on the horizon.
Key Takeaways:
- Shifting Landscape: Mahaney’s latest update sees Alphabet and Uber Technologies rise to the top of his large-cap "long" list, while Shopify makes its debut, replacing Amazon and Expedia Group.
- Alphabet’s AI Advantage: Mahaney argues that the impact of generative AI on Google Search has been largely underappreciated, boosting Alphabet’s appeal. YouTube’s growing popularity as a streaming platform adds further momentum.
- Uber’s Ride to the Future: Despite concerns about autonomous vehicles, Mahaney believes Uber is poised to benefit from their adoption as a "demand aggregator" for mobility. Uber’s valuation is currently at an attractive level.
- Shopify’s E-Commerce Edge: Mahaney sees Shopify‘s "best-in-class" e-commerce platform and its growing enterprise market opportunity as key drivers.
- Amazon’s Guidance Uncertainty: While Mahaney remains bullish on Amazon in the long term, he has concerns that the company might struggle to meet Wall Street’s expectations for the third quarter.
Alphabet Reaches New Heights
Mahaney’s elevation of Alphabet to the top spot reflects his confidence in the company’s strategic direction. He highlights the underestimated potential of AI integration in Google Search, which he believes will provide a significant competitive edge in the long run. He sees YouTube’s rising prominence in the streaming landscape as another key growth driver for the company. Additionally, Mahaney believes Alphabet’s commitment to operating margin expansion through strategies like Google Cloud scaling and reduced spending on "Other Bets" will fuel future profitability.
Uber Rides the Autonomous Wave
Despite market concerns about autonomous vehicles potentially harming ride-hailing companies, Mahaney believes Uber is primed to benefit from the shift. He sees Uber as a "demand aggregator" for mobility, making it a prime beneficiary of the widespread adoption of autonomous technology. He also points to Uber’s attractive valuation as a compelling reason for investors to consider the stock.
Shopify’s E-Commerce Dominance
Mahaney’s addition of Shopify to his top picks highlights his conviction in the company’s e-commerce platform. He highlights Shopify’s "best-in-class" status, its wide total addressable market (TAM) of roughly $850 billion, and its growing enterprise market opportunity. He is confident in Shopify’s ability to deliver continued product innovation and profitability growth, driven by its increasing attach rate.
Amazon Faces a Wall Street Challenge
While Mahaney remains bullish on Amazon as a long-term investment, he has expressed concerns regarding the company’s ability to meet Wall Street’s expectations for the third quarter. While he acknowledges Amazon’s strong performance in the second quarter, he believes the company’s consistent guidance pattern suggests a potential "expectations trip-up." This is more a matter of investor sentiment and expectations than an underlying issue with Amazon’s fundamentals.
Looking Ahead
Mahaney’s updated outlook for the large-cap internet sector provides valuable insights for investors navigating the dynamic and evolving landscape. His focus on sustainable profitability, AI integration, e-commerce growth, and autonomous vehicle adoption offers a clear roadmap for navigating this sector in the coming months. His adjustments to his top picks reflect careful analysis and a keen understanding of the evolving competitive landscape.
