Overall sentiment in the U.S. equity market has been optimistic throughout July and August. In fact, many analysts believe we are already in a bull market since the benchmark S&P 500 index has risen by more than 23% from the cyclical low it touched in October 2022. The S&P 500 is also just about 8% below the record high it set in January 2022. Once the benchmark crosses that level, Wall Street will definitively be in a bull market.
In such an upbeat environment, it may make sense for retail investors to opt for fundamentally strong stocks with robust growth prospects. E-commerce and cloud computing giant Amazon (AMZN 2.29%) and cybersecurity titan Palo Alto Networks (PANW -1.22%) seem well-positioned to ride high in a bull market. Here's why these companies could prove to be attractive long-term picks for retail investors.
Amazon
Though not long ago it was reeling from higher labor, logistics, and warehouse costs, Amazon now seems to be on the road to recovery. The stock is up by close to 58% so far this year and seems well-positioned to rise even more in the coming months.
Amazon produced a stellar performance in the second quarter, with revenue and earnings surpassing consensus estimates. For several quarters, its cloud computing platform, Amazon Web Services (AWS), has been the key to the company's profitability. While enterprise customers cut down on their cloud spending in the previous quarters, Q2 was different. AWS revenue stabilized and grew by 12% year over year to $22.1 billion.
Amazon is investing heavily across areas such as computation power and large language models. Its Amazon Bedrock service enables enterprise clients to use proprietary data with several large language models and create customized generative AI applications in a secure fashion.
But Amazon has also focused on optimizing hardware in a bid to boost its profitability and outpace the competition. At the end of the second quarter, over 50,000 customers were using AWS Graviton chips, which have 40% better price performance than Advanced Micro Devices' leading x86 processors. The company has launched a pair of chips designed specifically to support AI, Trainium and Inferentia, to train and run large language models.
Thanks to AI, big data, and machine learning, demand in the cloud infrastructure market is gradually picking up momentum. According to ReportLinker, the global cloud computing market is forecast to grow from $580 billion in 2023 to $1.24 trillion in 2028. As the clear leader in the cloud infrastructure market, with a 32% share as of the end of June, Amazon stands to benefit significantly from these tailwinds.
Amazon is also seeing gradual improvement in its e-commerce business, partly driven by improving conditions in North America as well as international markets. The company has adopted a regionalization approach, which has helped speed up deliveries, reduce fulfillment costs, and increase in-region deliveries. The company continues to dominate the U.S. e-commerce market with a 37.8% share (as of June 2022).
Considering the many tailwinds it's enjoying across its diverse businesses as well as its upcoming innovations in the AI segment, Amazon's shares may continue to rise rapidly in the coming months.
Palo Alto Networks
Palo Alto Networks saw its shares surge recently on the back of a solid fiscal fourth-quarter earnings performance. The company's revenue of $1.95 billion missed consensus estimates for the period that ended July 31, but its non-GAAP (adjusted) earnings per share of $1.44 topped the analysts' consensus estimate of $1.29.
Despite an increase in deal scrutiny and deal push-outs amid a challenging economic environment, the company reported an 18% year-over-year jump in billings to $3.2 billion, and its remaining performance obligations grew by 30% to $10.6 billion.
Palo Alto Networks has been increasingly focusing on several emerging cybersecurity trends such as cloud security, the Internet of Things, operational technology, secure access service edge (SASE), extended detection and response (XDR), and artificial intelligence-driven security solutions in its fast-growing next generation security (NGS) portfolio.
NGS continues to be the key growth engine, and reported a 56% year-over-year jump in annual recurring revenue (ARR) to $2.95 billion in fiscal Q4. The company added $381 million worth of net new ARR for its NGS portfolio in the quarter, the highest in its history as well as the history of any pure-play cybersecurity company. In its fiscal 2023, Palo Alto's Cortex XDR and SASE segments reported bookings worth over $1 billion, highlighting the demand momentum for these new technologies.
Enterprises in general are increasingly focusing on cost-cutting initiatives, which has led many to opt for unified security platforms rather than integrating independent solutions from multiple vendors. Palo Alto Networks' recently launched AI-driven security automation platform called XSIAM is also helping boost recurring revenue.
Management is forecasting revenue of $8.15 billion to $8.2 billion for fiscal 2024, implying growth of 18% to 19%. However, the company reports only 15% to 20% of its business as net new business in any quarter. Hence, the company enjoys very low revenue volatility. Coupled with its focus on large customers (which are less affected by macroeconomic challenges), high profitability, and an extensive focus on innovative technologies, the company could prove to be an attractive pick for investors now.
