We're almost one full quarter into 2019 so now is the right time to step back and take a look at the wider picture. The general correction of the second half last year has passed, stocks are up so far year to date, and if the market indexes are a reliable indicator investors are confident. The numbers show it - year to date, the S&P 500 has gained 12% and the tech-heavy Nasdaq is up 15%.
That confidence is clear in the tech sector. After five big tech companies - Facebook (FB) - Get Report , Amazon (AMZN) - Get Report , Apple (AAPL) - Get Report , Netflix (NFLX) - Get Report and Alphabet (GOOGL) - Get Report - collectively known as the FAANGs - drove a huge portion of the market's gains and losses last year it's no surprise to see some of them leading the gainers. Now let's dive into the TipRanks data, and see what Wall Street's top analysts have to say about Alphabet, Amazon, and Apple.
Alphabet's core strength is the Google search engine, whose near-total market dominance and near-infinite reach have given the company an unparalleled data mine on potential customers. That data also gives the company an Achilles heel, in the form of data privacy, online security, and governmental oversight and regulation into the matter. It is part and parcel of the problems that have plagued Facebook for the last year or more.
And like Facebook, Alphabet has a powerful online advertising model to rest on as a steady source of revenue. It's a business model that has proven itself successful for the digital age.
But the company is also looking ahead. MoffettNathanson analyst Michael Nathanson examined Alphabet's recent capital expenditures, which have been rising sharply, and concluded that the bulk of it is going into real estate investment and data centers - new facility construction. He sees it as a net positive and a sign that the company is thinking strategically: "As artificial intelligence becomes a greater driver of its businesses ... we believe Alphabet is building now to support human capital and processing power needs in the near future. Accordingly, we anticipate Alphabet will soon gain leverage from these investments, powering top-line growth and cementing its competitive positioning in the market."
Nathanson gives GOOGL shares a $1,380 price target, suggesting a 16% upside to the stock.
This was only the most recent analyst to take a bullish stance on Alphabet. Last month, just after the company released its fourth-quarter earnings, SunTrust's Youssef Squali set a $1,350 target for GOOGL. In his comments, Squali anticipates "Alphabet to sustain its mid-teen growth over the next several years with a focus on incremental profit and free cash flows, making the stock an attractive growth story at a compelling valuation." He sees a 13% upside potential in GOOGL shares.
Overall, Alphabet's GOOGL shares get a strong buy rating on the analyst consensus, based on 25 buys and just a single hold. The average price target is $1,345, suggesting a 13% upside from the current $1,190 price.
Of the tech giants, Amazon suffered the least from last year's market slowdown, but it has also shown the slowest gains in 2019. In part, this is an artifact of the stock's high share price - at just more than $1,700, it takes a serious tremor to move the needle on AMZN. Even so, the online retail giant has recovered over $350 per share since hitting bottom on Dec. 24.
Amazon's strength is in its sheer size. It is the fourth-largest publicly traded company in the world (it has been sharing the top four spots with Alphabet, Apple, and Microsoft (MSFT) - Get Report for most of the last two years), and it dominates the landscape of online retail. As UBS analyst Thomas Wadewitz said, Amazon "cannot be ignored." His price target, $2,100, suggests a high 22% upside for AMZN.
Morgan Stanley's Brian Nowak agreed that Amazon's size is an asset, especially as the company plans "to open dozens of grocery stores in several major U.S. cities, with a wider variety of products, less of a focus on organic items, and lower price points." He sees the move toward brick-and-mortar stores as a response to the increasing costs of e-commerce, and a way to extend products to the pharmacy sector. In addition, physical locations will put Amazon in closer touch with customers. Nowak gives AMZN shares a sky-high $2,200 price target, implying an upside of 28%.
Amazon's consensus rating is another strong buy, derived from a unanimous 31 buy reviews. The stock is trading at a price of $1,712, and the $2,125 average price target suggests a potential 24% upside.
Apple suffered one of the hardest hits among the FAANG grouping, dropping 38% from its peak last October to a low of $141 just after the new year. The decline was fueled by slowing iPhone sales, the ongoing contraction in Chinese consumer demand, and concerns over the simmering U.S.-China trade tensions. As 2018 ended, each of those factors began to show signs of resolution.
First, the slowdown in iPhone sales was attributable to a general maturation of the smartphone market. Believe it or not smartphones have been around for 10 years now; the replacement cycle is starting to lengthen as improvements appear in smaller increments and users keep their devices longer rather than snap up every new model with every new bell.
Second, while China's economy is undoubtedly slowing Apple is showing signs that it can compensate for a smaller market there - and for the longer device replacement cycle - by expanding its services sector. iPhones have brought Apple a loyal customer base, which can now be leveraged to increase revenue from the App Store, Apple Music and other services. The most recent quarterly earnings showed that this is already happening.
And finally, as we've all seen in the news, U.S. President Donald Trump and Chinese President Xi Jinping both have expressed confidence in the progress of trade negotiations as their diplomatic teams continue to talk. Their confidence has had at least one salutary effect: Trump has delayed the threatened imposition of retaliatory tariffs on Chinese trade.
That's the news. Wall Street analysts are starting to take it all into account. From Wedbush, Daniel Ives predicted that Apple's new streaming service will expand the company's presence in the gaming and video content segments. Gaming, especially, is a profit engine, and likely will power the services division's continued growth. Ives sees Apple streaming, which is scheduled to be unveiled on March 25 and expected to go live in the fall, bringing in up to 100 million subscribers in the first few years. He gives AAPL an optimistic $200 price target, suggesting a 7% potential upside for the stock.
In Apple's most recent analyst review, Timothy Arcuri of UBS looked at smartphone data released by the Chinese government. While he sees a steep decline in iPhone sales, he described is as "already baked into expectations." He's confident that AAPL remains a buy option, although his $185 price target may be out of date as AAPL closed above that on March 15.
Merrill Lynch's Wamsi Mohan sets out a more bullish case for Apple shares. He upgraded the stock to a buy rating, and his $210 target suggests a potential upside of 12%. Among the strengths he enumerates for Apple: a consistently loyal user base; competitive products in the higher price ranges; the acceleration in the services division; and the stability of the supply chain. It's a solid foundation for future growth.
Apple's recent surge in the markets - the stock is up 32% since it's low point in January - seems to have taken analysts by surprise. AAPL shares have powered straight through the average price target, and at $186 now stand $7 above that level. Look for analysts to reevaluate this stock soon, considering last week's gains. Right now, AAPL holds a moderate buy from the consensus rating, with 17 buys and 13 holds. It's a stock in the process of turning around.
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. Author: Michael Marcus. This author holds a long position in Apple, Inc.