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Key Points
Amazon is seeing accelerating cloud computing revenue growth and strong operating leverage in its e-commerce business.
Meta is starting to shift the narrative about its AI ambitions in a positive way.
Meta Platforms (NASDAQ: META) and Amazon (NASDAQ: AMZN) are two of my favorite short- and long-term buys. With the companies set to report earnings on July 29 and July 30, respectively, I'd be scooping up shares of both before then.
Both Meta and Amazon stocks have been laggards over the past year, but that doesn't mean the companies haven't been performing well. While they have been penalized for their aggressive AI infrastructure plans, that should be about to change.
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Let's look at why both stocks look like great buys right now.
Amazon: Accelerating cloud growth
Amazon has a history of investing aggressively, and history tells us that the company generally comes out much stronger after these big investment cycles. Its investments today are centered largely around building AI infrastructure, and the company's efforts in this area should lead to continued accelerating revenue growth at its AWS cloud computing unit when it reports its second quarter results after the bell on July 30.
Amazon invented the entire infrastructure-as-a-service cloud industry, and it continues to be the market share leader. Because of AWS' sheer size, though, its growth rate has lagged behind its peers. However, Q2 should demonstrate that not only is AWS' growth now much more robust, but that it is sustainable, backed by partnerships with Anthropic and OpenAI. The company also has a nice advantage in this area with its custom chip business, which should just continue to grow.
At the same time, Amazon's e-commerce business continues to hum along. The company's Amazon Prime Day event in June was once again strong, with Adobe and Retail Drive reporting that U.S. online sales jumped more than 9% during the event. And with the event shifting from Q3 to Q2, Amazon should see a nice lift in sales.
What is most exciting about Amazon's e-commerce business, though, is the operating leverage the company has been seeing with its investments in robotics and AI. Amazon is the world's leading manufacturer of robots, and with more than 1 million deployed in its fulfillment centers and coordinated by its Deepfleet AI model, it is driving serious efficiency gains in this business. That, in turn, is driving strong profitability growth that is nicely outpacing revenue growth.
Trading at a forward P/E of below 25 times 2027 analyst estimates, the stock is historically cheap and also a bargain compared to its brick-and-mortar peers, Costco and Walmart, which trade at forward P/Es above 37. That makes Amazon a bargain stock to buy ahead of earnings and to hold for the long term.
Meta Platforms: The newest cloud player
After bungling its metaverse vision and wasting a boatload of cash in the process with little to show for it, investors have been rightfully cautious about Meta's AI ambitions. However, the company is starting to change the narrative, and it will have a great chance to continue to do this on its next earnings call after it reports its Q2 results after the bell on July 29.
Meta revealed that it is looking to get in on the cloud computing game, with the social media giant in talks to lease up to $10 billion in computing capacity to Anthropic over the next two years. In total, Meta is looking to build approximately 14 gigawatts of AI capacity by 2027.
A cloud computing offering will give Meta more flexibility and ease the fear of it overbuilding capacity, since the company would be able to move between its own needs and those of customers. The company has also revealed its own custom chip, Iris, which it developed with Broadcom, to meet Meta's specific needs. The chip should also help Meta save costs. Meanwhile, its new AI model, Spark Muse 1.1, looks like a big leap forward.
At the same time, Meta's use of AI has been driving strong revenue growth, improving its recommendation algorithm to keep users on its sites longer, and helping advertisers achieve better conversion. This is leading to increased ad loads and higher prices. The company also has a huge runway as it starts to introduce ads to WhatsApp and Threads.
With Meta growing rapidly and trading at a forward P/E of only 17 times 2027 estimates, the stock has a lot of room to move higher in the short and long terms.
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Geoffrey Seiler has positions in Amazon, Broadcom, and Meta Platforms. The Motley Fool has positions in and recommends Adobe, Amazon, Broadcom, Costco Wholesale, Meta Platforms, and Walmart. The Motley Fool recommends the following options: long January 2028 $330 calls on Adobe and short January 2028 $340 calls on Adobe. The Motley Fool has a disclosure policy.
