MS: Amazon remains top mega cap pick; double digit upside seen for Google, Meta

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Amazon (NASDAQ:AMZN) remains Morgan Stanley's top mega-cap pick ahead of earnings, with analysts predicting strong potential for Amazon Web Services (AWS) growth and improved North American profitability in a note to clients this week.

According to Morgan Stanley, which raised its target for AMZN to $240, AWS needs to grow by at least 18% to build new management credibility and ensure confidence in its GenAI positioning.

The bank believes the market also needs clarity on the slope of North American retail profits, with Morgan Stanley estimating they are 8-12% ahead of street predictions for 2024/2025 company-wide EBIT.

"Stepping back to total company-wide EBIT, we think 2Q results/3Q guide should make the market feel more confident in a path toward ~$70bn of company-wide EBIT (mid-$80bn in '25)," wrote Morgan Stanley. "Notably for the 3Q guide, we are in-line with street on Total Revenue, largely driven by 1% above street North America Revenue and -2% below street International Revenue."

For Meta (NASDAQ:META), Morgan Stanley highlights a new bottom-up capex model providing greater visibility into return on invested capital (ROIC). The model predicts Meta's total GPU power will increase sevenfold from 2024 to 2026.

Analysts believe more than 50% of Meta's current GPU capex is targeted toward high-ROIC core improvements, while the remainder funds longer-term projects like training Llama models and developing Meta AI.

Morgan Stanley sees a path toward approximately $29 of free cash flow in 2026 and sets a price target of $550, indicating a 15% upside.

Google (NASDAQ:GOOGL) is expected to show 12% year-over-year search revenue growth in Q2, driven by strong digital ad markets and recent SEO changes.

Morgan Stanley emphasizes the importance of profit revisions and believes the Street's EBIT estimates are too low. With disciplined opex management, Google's ability to deliver stronger revenue growth could drive tactical outperformance. The bank maintains an Overweight rating on Google with a price target of $210, reflecting an 18% upside.

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