Technology

Baird Says Stay With the Big 3 Tech Giants for 2019 and Beyond

Lee Jackson

Published: September 18, 2018 8:40 am

Last Updated: January 11, 2020 5:46 pm

Recently there has been a plethora of negative sentiment directed at some of the biggest technology companies, and some of it with good reason. We are in uncharted waters when it comes to many of the areas that mega-cap tech is pursuing, and investors can expect the level of scrutiny to remain elevated. However, as long as the top companies continue to make our lives better via technology, they will remain at the forefront for investors.

In a new research report, Baird analysts highlighted some of the top companies from the Shop.org conference, and three stocks are rated Outperform at the firm.

The report said this:

Day 2 of the shop.org conference was highlighted by a focus on Artificial Intelligence/Machine Learning technologies and evolving use cases for voice-enabled commerce. Google continues to invest heavily in transaction-oriented services, leveraging user data across seven billion-user properties to help retailers create online shopping experiences for users with limited friction. Conversations with digital marketing contacts also suggest demand remains strong for Facebook advertising despite mixed headlines and shift to Stories.

Alphabet

The search giant continues to expand and, while search is king, the cloud presence is growing fast. Alphabet Inc. (NASDAQ: GOOGL) is a global technology company focused on key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products. It generates revenue primarily by delivering online advertising and by selling apps and contents on Google Play, as well as hardware products. The company provides its products and services in more than 100 languages and in 190 countries, regions and territories.

Alphabet offers performance and brand advertising services. It operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.

The company blew out the latest earnings numbers, and with a wide and bountiful silo of products and services, the stock remains almost unchallenged. It should be noted that traffic acquisition cost relief drove 20% gross profit growth, despite heavy cloud infrastructure and YouTube content investment. The Baird team noted this in their report:

At the conference, Google outlined expanding capabilities to facilitate commerce, capitalizing on the “treasure trove” of data provided by seven different properties each with at least one billion active users (Android, Search, Chrome, Maps, Play, YouTube, and Gmail). Smart shopping campaigns leverage machine learning to make sense of touchpoints along the consumer purchase path, including better offline attribution capabilities (locally-oriented searches +200% over last two years) and improved purchase conversion rates (20% on average).

Baird has set its price target at $1,380, while the Wall Street consensus target is $1,383.91. The shares closed most recently at $1,159.83 apiece.

Amazon

This is the absolute leader in online retail and a dominant player in cloud storage business, and it remains the top pick on Wall Street. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers.

The company serves developers and enterprises through Amazon Web Services, which provides computing, storage, database, analytics, applications and deployment services that enable virtually various businesses. AWS is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market.

The Baird team is very positive on the stock and the report noted this:

Consistent with prior checks this year, digital marketing attendees in our checks overwhelmingly cited Amazon as the fastest-growing channel for advertising budgets, while many retailers are also leveraging their Amazon advertising data to re-target users on other channels (namely Facebook) to drive traffic/ sales to their own websites (bypassing Amazon marketplace/FBA fees).

The Baird price target for the shares is $2,100, and the posted consensus target was last seen at $2,133. The stock closed trading on Monday at $1,908.03 per share.

Facebook

This stock was incredibly volatile recently after the huge social media leader posted absolutely horrible results. Facebook Inc. (NASDAQ: FB) is the largest social network with over 2.0 billion monthly active users and over 1.4 billion daily active users. The company generates revenue from advertising and from payments, with over 95% of revenue from advertising. It generates close to 50% of revenues in the United States and Canada and is expanding rapidly in international markets.

Its solutions also include Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application for mobile and web on various platforms and devices, which enable people to reach others instantly, as well as enable businesses to engage with customers; and WhatsApp Messenger, a mobile messaging application.

Despite the disappointing earnings results and metrics, which caused the shares to sell off a stunning 20%, Facebook is used by some 60% of small businesses, which utilize the company’s advertising platform in some way for their businesses. The ability to grow that number is a huge positive for the beleaguered social media giant. The Baird team said this regarding the success in advertising for the company:

Marketing contacts also suggested that despite negative headlines around data privacy, slowing engagement and shift to Stories, Facebook advertising return-on-investment remains strong. While limited access to Facebook’s ad application program interface created some issues for 3P data providers and friction for advertisers (now must upload 1P data directly to Facebook), the platform’s targeting capabilities and reach remain best-in-class.

The $195 Baird price target is less than the $211.03 consensus target for the stock. The shares were last seen trading at $160.58.

The intense scrutiny on the powers and capabilities of big technology will not end anytime soon. It’s also a decent bet that some regulation could be headed their way as well. With that in mind, the big three remain the top way to play this incredible growth sector.