The communications industry has undergone significant evolution from its roots in the telecom sector, which historically featured highly regulated, slow-growth giants. The landscape changed notably in 2018 when index providers S&P and MSCI merged several major US tech companies with the traditional telecom sector, forming the new communication services sector.
“This changed everything,” says billionaire investor Ken Fisher, a renowned figure in the investment world, who expects more strength from the communication segment and its leaders.
“While tech is 2024’s top-performing global sector – surprising no one, given artificial intelligence enthusiasm and more – the communication services sector is a mere wiggle behind,” Fisher noted. “Expect more strength from big, tech-like communication firms. They should continue thriving as corporations switch to offence after two years of cost-cutting. Their fat GOPMs let them self-finance growth as spirits warm.”
The biggest names in this paradigm, as per Fisher, are market giants Alphabet (NASDAQ:GOOGL) and Meta Platform (NASDAQ:META). Both have been delivering the goods to investors in recent times and the Fisher Investments founder, who has a personal net worth of $11.2 billion, has a big stake in both.
To gain a comprehensive view of their prospects, we turn to the TipRanks database, where analysts also endorse Fisher’s outlook, rating both stocks as Strong Buys. Let’s take a closer look.
Alphabet
First up, Alphabet, one of a select group of companies that dominate the lives of billions across the globe. Responsible for the myriad Google endeavors – such as main breadwinner the Search business, Google Cloud and Google Play – and other huge concerns with YouTube and Android, the company has also ventured into various innovative fields including autonomous vehicles with Waymo, life sciences through Verily, and other ambitious projects collectively known as “Other Bets.”
The company has also been leaning heavily into AI, particularly through its subsidiary DeepMind and via the development of its own GenAI offering, Gemini, which aims to push the boundaries of machine learning, natural language processing, and computer vision. Gemini’s advancements are deeply integrated into many of Alphabet’s services.
Turning to the financials, investors reacted positively to the strong results seen in its latest quarterly readout. In Q1, revenue climbed by 15.4% year-over-year to $80.54 billion, beating the Street’s forecast by $1.84 billion. Within that figure advertising revenue reached $61.7 billion, representing a 13% uptick, with $8.09 billion of that figure claimed by YouTube, assuaging fears it would underperform by showing a 21% YoY improvement. TheCloud business also outperformed, growing by 28% to $9.57 billion. At the bottom-line, EPS of $1.89 beats expectations by $0.38.
No doubt, Fisher must have been happy with all that. As of the end of the first quarter, he held over 46.32 million GOOGL shares, which at the current price are worth over $8.1 billion.
The company also has the support of Evercore’s Mark Mahaney, an analyst ranked at the 24th spot amongst the thousands of Wall Street stock pros, who sees more good times ahead for this big hitter.
“Google’s competitive position is as strong as ever,” said the 5-star analyst. “And Google may well have ‘the’ Killer Product Cycle on its hands today! And Killer Product Cycles can sometimes translate into Killer Stocks. We believe this product cycle could materially improve the Revenue growth potential of GOOG’s largest business segment, leading to more sustained double-digit topline growth and 25%+ earnings power for the next several years.”
Conveying his confidence, Mahaney rates GOOGL shares an Outperform (i.e., Buy) while his $225 price target offers one-year returns of 28%. (To watch Mahaney’s track record, click here)
Most analysts agree. Based on a mix of 33 Buys vs. 5 Holds, the stock claims a Strong Buy consensus rating. At $198, the average price target factors in 12-month gains of ~12%. (See GOOGL stock forecast)
Meta Platforms
Also taking a place of distinction in Fisher’s portfolio is another name that resides in the top 10 list of the world’s most valuable companies – Meta Platforms. As of the end of Q1, Fisher held over 5.64 million shares of Meta, valued at ~$2.82 billion.
The social media giant is famously the brainchild of wunderkind Mark Zuckerberg, who founded the company with his colleagues in 2004, while still at Harvard and who went on to become the world’s youngest self-made billionaire at 23.
Initially launched as a social networking platform, Meta has evolved into a diverse portfolio of products and services spanning social media, virtual reality, augmented reality, and AI. The company’s primary platform, Facebook, remains one of the world’s most popular social networking sites, connecting billions of users globally. But Meta has expanded its scope with acquisitions such as Instagram and WhatsApp, bolstering its influence in digital communication and social networking.
Meta shares have also been putting in a strong rally (up by 41% ytd) even if its Q1 print offered a bit of a blip. Revenue reached $36.46 billion, for a 27.3% YoY increase, outpacing the forecast by $240 million. Likewise at the other end of the scale, EPS of $4.71 beats by $0.39.
However, a light revenue outlook – the company called for Q2 revenue of $36.5-$39 billion, at the midpoint below the analysts’ expectation of $38.3 billion – soured proceedings. However, since then, the stock has recovered most of the post-earnings drop.
For Mizuho analyst James Lee, there are plenty of reasons why investors should take note of Meta. “We are incrementally confident in product drivers, manageable Chinese advertising decline, flexibility in opex to pass capex stress test, and the attractive optionality long-term,” he said. “Furthermore, we believe Meta is well positioned for consumer AI as the company evolves into the super app that other mobile apps develop inside the ecosystem… As a result, we maintain META as a top pick… The stock only trades at 10x FY26E EBITDA, and we believe the successful execution of its strategy could lead to a multiple expansion to our target…”
Based on the above, Lee rates the shares a Buy backed by a $575 price target. There’s a potential upside of 15% from current levels. (To watch Lee’s track record, click here)
The rest of the Street is mostly on board too. The stock claims a Strong Buy consensus rating, based on 37 Buys against 3 Holds and 2 Sells. That said, the forecast calls for one-year returns of a modest ~5%, considering the average target stands at $525.32. (See Meta stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
