One smart investment strategy is to look for businesses benefiting from some kind of secular trend. These shifts in the economy often aren't too difficult to identify. And for certain companies, they can provide sustainable tailwinds that lead to strong growth over extended periods.
For example, dominant tech businesses Amazon (AMZN 3.43%) and Alphabet (GOOGL 10.22%) (GOOG 9.96%) are both riding unstoppable trends right now. Investing in their shares today can help make you richer in 2024 and beyond.
More than just e-commerce
Unsurprisingly, FAANG stock Amazon's bread-and-butter business is e-commerce. The company essentially helped spearhead the rise of online shopping nearly three decades ago, going from selling just books to now selling almost anything imaginable. In fact, starting next year, consumers will be able to buy Hyundai cars on Amazon.com. Given that Amazon.com gets 4.2 billion visits annually and accounts for almost 38% of all online sales in the U.S., it will continue benefiting from the growth of e-commerce activity.
However, the company has other tailwinds that could drive gains well into the future. For starters, with Amazon Prime Video, the business has its hands in the streaming industry. With more than 200 million subscribers worldwide, Amazon Prime has a massive base of potential viewers. The company also purchased MGM Studios for $8.5 billion in early 2022, which bolsters its ability to create compelling content.
Investors are also most likely familiar with Amazon Web Services (AWS), the leading cloud services and infrastructure provider with a 32% market share. Grand View Research believes the global market for cloud services will be worth $1.6 trillion by 2030. That's a powerful trend that can lift AWS to new heights.
Amazon shares have impressed in 2023, rising by 74% year to date as of Nov. 20. That gain crushed the broader Nasdaq Composite index. But it doesn't mean the stock is expensive by any means. It trades at a price-to-sales multiple of 2.7. That's below the 10-year historical average of 3.1.
More than just digital advertising
The rise of the internet over the past couple of decades has been a boon for Alphabet, particularly as it relates to the growth of digital advertising, which is undoubtedly still the company's crown jewel segment. Digital advertising generated revenue of $224 billion in 2022, 79% of the company's total. After a slowdown in ad sales due to macroeconomic headwinds, there are clear signs that marketing activity is picking up steam once again. Over the long term, as internet users and usage continue rising, Alphabet will benefit.
Like Amazon, Alphabet also owns a major contender in the streaming industry -- YouTube, which has a whopping 2.7 billion monthly active users. It's a unique asset because while it generates lots of advertising revenue, the user-generated nature of its content means it offers something to match nearly every individual's interests and tastes. According to data from Nielsen, YouTube attracts more viewing time than any other streaming service in the U.S.
Alphabet also owns the third-largest cloud service provider in Google Cloud. That service's revenue increased by 22% in the third quarter, a faster pace of growth than AWS. Even more encouraging, Google Cloud has produced positive operating income in the last three quarters.
Alphabet's stock has climbed 54% year to date in 2023. But it remains 9% below its peak price, so I think its valuation is still reasonable. With the stock trading at a forward price-to-earnings ratio of 23.7, investors shouldn't hesitate to scoop up shares right now.
