Even though the stock market has rebounded since "Liberation Day" three weeks ago, it has not been a fun year for technology investors. Plenty of "Magnificent Seven" stocks are still down over 20% from all-time highs, including Amazon (AMZN +0.55%), Alphabet (GOOG +0.41%) (GOOGL +0.66%), and Meta Platforms (META 1.18%). Wall Street is concerned about tariffs and their impact to 2025 earnings.
This short-sighted thinking can be a buying opportunity for investors focused on more than just the next few quarters. Here's why these three are perfect stocks to buy the dip on during this market volatility.
Meta's dominant market position
Meta Platforms owns three of the largest social media platforms in the world: Facebook, Instagram, and WhatsApp. Last quarter, 3.35 billion people used a Meta service every day. Excluding China -- where Meta does not operate -- that is over half of the world's population using a Meta product daily. That incredible global scale is rivaled only by its other technology peer in Alphabet.
Even though other social media platforms like Snapchat or Pinterest have hundreds of millions of users, no other application besides TikTok has the time spent and advertising expertise to get close to Meta's scale. Last quarter, Meta Platforms' revenue grew 21% year over year to $48 billion, with operating margin expanding from 41% to 48%. The math works out to a 43% year-over-year increase in operating income in the quarter, one of the fastest growth rates of any large technology company in the world.
Working heavily on artificial intelligence (AI), virtual reality, and other research projects, Meta is not resting easy as the next technology paradigms come its way. Founder and CEO Mark Zuckerberg is dead set on winning market share in AI and with its mixed reality hardware headsets, spending tens of billions of dollars a year to get ahead of the competition. Even with all this research spending, Meta has a 48% operating margin. Talk about an incredible business model.
Down 26% from all-time highs as of this writing, Meta's trailing price-to-earnings ratio (P/E) has fallen to 22. Even if 2025 is rough due to tariff uncertainty, Meta is a great stock to own today due to its rock-solid business model and founder-led focus on technological innovation.
Alphabet's multipronged growth
The only company that could possibly argue it has more daily users across its various consumer services is Alphabet, although it doesn't disclose this figure. The owner of Google Search, other Google properties, YouTube, Google Cloud, Waymo, and more is down 21% from all-time highs even after getting a bump from a strong earnings release this week.
Despite worries about competitors in AI, Alphabet's business continues to shine. Google Search (and other segment) revenue grew 10% year over year in its Q1 to $51 billion, YouTube advertising revenue grew 10% to $8.9 billion, and Google Cloud grew 28% to $12.3 billion. Even better, at increasing scale Alphabet's operating margin keeps expanding, hitting 34% last quarter compared to 32% in the same quarter a year ago.
There is a lot to like about Alphabet's future, too. Its Gemini AI tools keep growing and its self-driving robotaxi network Waymo recently hit 250,000 weekly rides, up 5x from a year ago. At a cheap-looking P/E ratio of 20, Alphabet stock is a fantastic technology business to buy and hold for many years into the future.
NASDAQ: GOOGL
Key Data Points
An Amazon profit inflection
Lastly, we have Amazon joining the mix of technology giants down 20% from highs. However, unlike Alphabet and Meta Platforms, Amazon does not generate sky-high profit margins today, but is likely to be going on a journey of profit expansion over the next five years. This is why its P/E ratio looks slightly high at 34, even though its true earnings potential should be realized in the next few years.
Amazon's e-commerce marketplace has evolved in the last decade. Instead of making money by taking on inventory and selling goods itself, Amazon's business revolves around managing transactions for third-party sellers. It also has a high-margin advertising business doing $56 billion in revenue and subscription revenue hitting $44 billion a year. This means that Amazon's e-commerce business has much higher margin potential than 10 or 20 years ago, which is slowly getting reflected in its profit margins. North American retail margins were just 6.4% in 2024, with room to grow significantly higher than 10% over the next few years.
Even better is Amazon Web Services (AWS), the cloud infrastructure giant that does over $100 billion in revenue. It had a 37% operating margin in 2024. Combined with the rising margins in e-commerce, I think that Amazon's consolidated profit margins have room to grow from 11% last year to 15% or even 20% within the next few years.
As revenue keeps rising along with this profit margin expansion, Amazon's earnings should inflect higher. At $750 billion in future revenue -- revenue was $638 billion last year -- that equates to $150 billion in annual income on a 20% profit margin. Today, Amazon's market cap is $2 trillion, so $150 billion in earnings would bring the P/E ratio down to 13.3 based on today's stock price. I believe that makes Amazon stock cheap for those looking to buy right now and hold for many years.
