How the mighty have fallen: Amazon (AMZN +1.44%) has given up nearly all the gains it made after 2020's big coronavirus-fueled sell-off. Alphabet (GOOG +1.09%) (GOOGL +1.37%) isn't in quite as bad of a predicament. However, its shares are back to where they were two years ago after sinking 39% in 2022.
These horrid performances might cause some investors to want to throw in the towel altogether on the pair of former highfliers. My take, though, is the 180-degree opposite of this view. Here's why Amazon and Alphabet are still two of my highest-conviction stocks in 2023.
NASDAQ: AMZN
Key Data Points
Negating the negatives
To be sure, Amazon and Alphabet have some drawbacks. There's no such thing as a perfect stock. But I believe that the negatives for Amazon and Alphabet aren't as bad as some might think.
The two companies disappointed investors with their latest quarterly updates. Macroeconomic issues are causing problems for Amazon and Alphabet. However, those macroeconomic headwinds won't persist forever. I fully expect both companies to return to stronger growth when economic conditions improve.
Both Amazon and Alphabet face increasing competition. Amazon's plan to expand its Buy with Prime program, though, looks like a genius move that will fortify its competitive position in the market. Meanwhile, Alphabet's YouTube Shorts should help fend off the threat from TikTok. And I think the predictions that OpenAI's ChatGPT could be a Google killer greatly underestimate Alphabet's own artificial intelligence (AI) expertise and the strength of the Google brand.
Another negative for these companies is the increasingly difficult task of delivering enough growth to move the needle because of their huge market caps. This is a real challenge. However, both Amazon and Alphabet have multiple paths for long-term growth.
NASDAQ: GOOGL
Key Data Points
The trends are their friends
Both of these companies' core businesses hinge on people looking online, whether it's to shop, find answers to questions, or be entertained. I'd bet that online activity will increase in the future rather than decrease.
This won't just benefit Amazon's e-commerce business and Alphabet's Google Search and YouTube businesses, though. Each company also operates highly successful cloud hosting units. Amazon Web Services and Google Cloud should continue to deliver strong growth for a long time to come.
I think that the rise of AI is an unstoppable trend that could transform the world. Amazon and Alphabet are both AI leaders. Each has huge growth potential as a result.
For example, Amazon's pending acquisition of iRobot should make the company an even more formidable presence in the AI-powered home technology market. Alphabet's Waymo unit is likely to grow much larger with the increased adoption of self-driving cars.
Speaking of unstoppable trends, aging populations across the world will inevitably drive increased demand for healthcare services. Amazon and Alphabet have significant opportunities in healthcare. Amazon's acquisition of One Medical represents another big step for the company's healthcare expansion. Alphabet's famous "other bets" include Calico and Verily, both of which have tremendous potential for launching innovative healthcare technologies.
The bottom line is that both Amazon and Alphabet are in great positions to be leaders in new markets with explosive growth potential. The trends are their friends.
Higher in 2023?
Both Amazon and Alphabet are without question two of my highest-conviction stocks in 2023. But are they my highest-conviction stocks for 2023? In other words, do I think these stocks are very likely to move higher this year? On this question, I'm more wobbly.
The problem is that I'm not sure what's going to happen with the economy in 2023. If there's a recession in the U.S., most stocks will suffer. I'd expect Amazon and Alphabet to be in that group. It's quite possible that neither of these stocks will deliver great returns this year.
Even if that's the case, though, any economic difficulties will be only temporary. The future remains bright for both Amazon and Alphabet, in my view. I predict that both will remain mighty for a long time to come.
