In a notable divergence of opinion, Rosenblatt Securities has thrown its weight behind Amazon.com, Inc. (NASDAQ:AMZN) as a top pick in the AI-driven cloud race, even as Alphabet Inc. (NASDAQ:GOOGL) presents a more compelling valuation case. The contrasting views highlight the complex dynamics shaping the technology sector's leaders.
Rosenblatt's Bullish Stance on Amazon
On August 19, analyst Scott Devitt initiated coverage of Amazon with a Buy rating and a price target of $335, implying a 27.9% upside from the stock's closing price of $261.86 on Thursday. Devitt praised Amazon's AI capabilities and its robust business model, positioning the e-commerce and cloud giant as a preferred vehicle for AI-driven growth.
Alphabet's Valuation Advantage
Meanwhile, Alphabet, the parent company of Google, trades at a forward price-to-earnings (P/E) multiple of approximately 25.86x, about 10% lower than Amazon's 28.72x. This valuation gap is particularly noteworthy given that Alphabet's cloud division is growing at a faster clip. Google Cloud revenue surged 82% year-over-year to $24.77 billion in the June quarter, with operating profit tripling to $8.81 billion.
Cloud Battle: Scale vs. Speed
The cloud comparison pits Amazon Web Services (AWS) against Google Cloud. AWS remains the market leader in absolute size and profitability, with revenue up 37% to $42.23 billion and an operating margin of 39.4% versus Google Cloud's 35.6%. However, Google Cloud's faster growth rate and lower valuation make it an attractive alternative for investors seeking exposure to the AI infrastructure boom.
Both companies are capitalizing on surging demand for AI infrastructure and solutions. Alphabet CEO Sundar Pichai attributed Google Cloud's expansion to "demand for AI infrastructure and AI solutions," while Amazon CEO Andy Jassy noted that AWS is experiencing its highest growth rate in 18 quarters.
Analyst Actions and Market Reaction
Rosenblatt's initiation is the latest in a series of analyst moves. On the same day, Bank of America's Justin Post reaffirmed a Buy rating on Alphabet, while Bernstein Research lowered its price target on Alphabet to $385 from $390, maintaining a Hold recommendation. The consensus targets reflect a 25.5% upside for Alphabet and 24.8% for Amazon, nearly identical.
Shares of both companies fell on Thursday, with Alphabet losing 1.0% and Amazon shedding 1.5%, part of a broader tech selloff that also impacted Meta Platforms (NASDAQ:META) and Microsoft (NASDAQ:MSFT).
Beyond Headline Earnings
Investors are advised to look beyond headline earnings, as both companies reported significant one-time gains. Alphabet recorded a $77.1 billion after-tax gain from equity securities, while Amazon reported $53.4 billion in pretax other income, primarily from its stake in Anthropic. These distortions make forward P/E multiples a more reliable indicator of underlying performance.
Outlook and Risks
Looking ahead, Amazon projects third-quarter revenue between $197 billion and $202 billion, with operating income between $22.5 billion and $26.5 billion. Alphabet will need to sustain its cloud momentum as year-over-year comparisons become more challenging.
Key risks include potential overinvestment in AI infrastructure relative to actual demand, regulatory shifts, competitive pricing in cloud services, and volatility in investment returns. As the AI race intensifies, the battle between these two tech titans offers investors a stark choice: Amazon's scale and profitability versus Alphabet's faster growth and cheaper valuation.
