There's a lot of panic and fear in the market right now, caused by the Trump administration's tariff announcements. Artificial intelligence (AI) stocks, in particular, have been slammed as investors move their money from risky stocks to more conservative investments.
While I understand why, I'm more focused on the long term, and I'm looking for great deals that will be worth substantially more over the next five years.
I've come up with two strong picks that could soar over the next five years from today's prices. Their strength can be tied to the massive AI demand that's coming down the pipeline.
Cloud computing growth will drive these two stocks, even with weaker consumer spending
The two stocks I'm confident will be worth far more five years from now are Amazon (AMZN +0.55%) and Alphabet (GOOG +0.41%) (GOOGL +0.66%). At first glance, these two look like they will be whacked by the newly imposed tariffs.
Amazon is the leader in e-commerce and sources a substantial amount of goods from China, which was a major tariff target. Additionally, the de minimis exemption (which allowed for shipments valued at under $800 to avoid tariffs) was ended, harming many third-party sellers on the platform. This could cause the price of goods to rise on Amazon's website, prompting consumers to spend less overall.
NASDAQ: AMZN
Key Data Points
Alphabet derives about three-quarters of its revenue from advertising services. Advertising is one of the first areas where companies cut spending when they see a recession or weak times on the horizon. With such a large chunk of revenue coming from advertising, Alphabet will likely see its revenue tumble, should these tariffs force a recession.
Neither Amazon's nor Alphabet's outlook is very positive, so why do I think the stocks could be higher in five years? It has nothing to do with their base businesses.
Both Amazon and Alphabet are big players in the cloud computing space. Amazon Web Services (AWS) is the market share leader, and Google Cloud holds third place. Cloud computing providers are a huge benefactor of the AI build-out because many companies choose to run AI workloads on cloud servers rather than purchase the expensive computing equipment themselves.
Furthermore, there is a general move to run workloads on the cloud rather than on-premises because clients can easily scale usage up or down. They also don't have to worry about a single point of failure or server maintenance or repairs.
Grand View Research estimated the cloud computing market was at around $752 billion in 2024, but expects it to grow quickly over the next five years until it reaches a $2.39 trillion opportunity by 2030. AWS and Google Cloud will be direct beneficiaries of that rise, and it makes me want to buy the stocks now because they are beaten down so much.
Cloud computing is a growing part of each company's business
What many investors fail to understand about Amazon's stock is that it isn't an e-commerce company with a cloud computing side business; it's actually the opposite.
In 2024, AWS only made up 17% of Amazon's revenue. But the market doesn't care about revenue; it cares about profits. From an operating profit standpoint, AWS generated 58% of Amazon's total profit, which shows how much more efficient AWS is than the e-commerce business. This gap could widen if Amazon sees its e-commerce business struggle, but AWS will be there to pick up the slack.
Google Cloud isn't as large a profit contributor for Alphabet as AWS is for Amazon. This is because Alphabet's base business (advertising) is far more profitable than Amazon's e-commerce business. Still, Google Cloud is by far the fastest-growing segment of Alphabet, increasing revenue at a 30% clip in Q4. It makes up around 12% of Alphabet's total, but this share could grow if the advertising business slows due to weaker consumer spending.
NASDAQ: GOOGL
Key Data Points
Google Cloud's growth will likely stay strong, and it will benefit from improving operating margins. In Q4, it generated a 17.5% margin compared to AWS's 37%, so there is plenty of room for efficiency gains. This will lead to Google Cloud becoming a powerhouse within Alphabet, much like how AWS has become with Amazon.
Because the tailwinds for cloud computing are still raging during this drawdown, combined with both companies likely emerging just fine from any tariff-induced weakness, I think both stocks are fantastic buys right now. However, you'll need to maintain a five-year outlook to benefit the most from owning these two stocks.
