After an encouraging rally to end 2023, the major indexes continued their winning streak in the new year. The Nasdaq Composite is just a couple of percentage points from setting new highs, up 36% over the past 12 months.

Amazon (AMZN 3.43%), Roku (ROKU -10.29%), and Alibaba (BABA 0.59%) are leaders in their respective markets spanning e-commerce, cloud services, and entertainment. These companies are reporting improving business results, but their share prices still trade at discounts from their previous peak.

Here's why these three turnaround stocks offer investors significant upside over the next few years.

1. Amazon

Amazon stock has had a good run over the last year, rising 61%, but it's still 16% off its previous high in 2021. An improving outlook in its most profitable business could send the stock to new highs in 2024.

Amazon Web Services (AWS) is the leading cloud services provider, with over 30% share of the market, according to Synergy Research. AWS helps companies get more value out of their data to improve products and customer experiences, but Amazon's investments in AI technology are only just beginning to pay off.

The AWS segment saw operating income jump 29% year over year in 2023's third quarter. It is now at $87 billion in trailing-12-month revenue, with a long runway of growth ahead.

Amazon has invested heavily in its own AI processors and services to capitalize on growing demand. Amazon Bedrock allows companies to use their own data to make custom large language models for AI applications. Amazon CEO Andy Jassy said in the third-quarter earnings call that the number of companies building generative AI apps on AWS is "substantial and growing very quickly."

The future is bright for Amazon, and that is starting to be reflected in the stock price. The shares still trade at a reasonable price-to-sales (P/S) ratio of 2.90, which is still below Amazon's 10-year average P/S ratio of 3.14.

With Amazon's e-commerce business also starting to show improving growth coming out of the economic slump last year, investors should expect to see more new highs over the next few years.

2. Roku

The future of TV is quickly moving toward streaming, as just about every major network has followed Netflix's lead and launched a streaming service. This is a major growth opportunity for Roku, which makes most of its revenue from advertising. Over the long term, advertising will move to where viewers are spending time, but a weak ad market in 2022 delayed Roku's growth plans, sending the stock down 79% over the last three years.

Investing in companies that make money from advertising can be a profitable move during a weak economy. This is because the U.S. TV market is worth $60 billion. Brands may push the pause button occasionally, but companies will never stop advertising. This means a comeback is due for this popular streaming brand.

Roku's advantage is that it has the eyeballs to win over a sizable share of the ad dollars that will shift to streaming services. It reaches nearly half of U.S. broadband households. Roku is winning over viewers with free ad-supported content through The Roku Channel, which saw total streaming hours grow 50% year over year last quarter.

The stock has rallied 61% over the last 12 months, which I would look at as validation of the company's opportunity. Roku stock offers significant upside over the next five years coming out of the recent downturn.

3. Alibaba

While there are probably not any e-commerce businesses that can hold a candle to Amazon, China is one area of the world that Amazon hasn't been able to crack. That's because Alibaba dominates the Chinese market with a market share of nearly 50%, according to Statista.

Alibaba operates several business units across logistics and entertainment, but its e-commerce businesses, including Taobao and Tmall, contributed two-thirds of its total revenue last year. Alibaba's Tmall relies on third parties to sell goods, where it earns a high margin charging commissions and fees on each transaction. This lends itself to a highly profitable business, where Alibaba generated $30 billion in free cash flow over the last four quarters.

However, the company's leading role in China's digital economy also means it's vulnerable to a weak economy. Slowing growth, along with the uncertain regulatory environment in China, has sent the stock well off its highs. This is a great opportunity to buy one of the leading tech giants in the world at a bargain price.

Alibaba's massive reach in China's e-commerce market could set up a big comeback. Across all business segments, revenue increased 9% year over year in the September-ending quarter, with Alibaba's international commerce business growing 53%. Moreover, the company's operating profit jumped 34% year over year, further supporting the value underpinning the share price right now.

As China's economy emerges from pandemic-related disruptions, Alibaba stock offers significant upside. The shares currently trade at a cheap forward price-to-earnings ratio of 7.5. This is a top turnaround candidate to bet on in 2024 and beyond.