While artificial intelligence (AI) fever has tapered down from its previous highs, the potential of AI hasn’t diminished. As AI continues to influence various industries, investors are turning to AI stocks as a profitable investment opportunity. Notably, AI is boosting robust growth for the top tech titans. Here, we'll look at two of the "Magnificent Seven" stocks that continue to harness the power of AI to drive exceptional growth ahead. 

Meta Platforms (META), the parent company of social media platforms Facebook, Instagram, WhatsApp, and more, reported a blowout first quarter on April 25. Meanwhile, e-commerce giant Amazon (AMZN) has now expanded into entertainment, cloud computing, and more. By integrating AI into its offerings, the company is also experiencing rapid growth.

Meta Platforms

Meta has had a strong start to 2024, outperforming consensus revenue and earnings estimates. Total revenue increased 27% year on year to $36.4 billion. Likewise, diluted earnings per share (EPS) increased by a whopping 114% to $4.71. 

Even as traders today take the opportunity to sell the news, META stock is up 24% year-to-date, far outperforming the S&P 500 Index’s ($SPX) gain of 5.5%.

On the earnings call, CEO Mark Zuckerberg stated that Meta estimates that 3.2 billion people use at least one of its apps daily. This massive consumer attention has driven growth in its Family of Apps (FoA) segment (which includes all of its social media platforms) in Q1. The FoA segment accounted for 99% of total revenue in Q1, up 27.2% year on year, while operating income increased by 57% over Q1 2023.

Thanks to AI, the company's metaverse-focused Reality Labs (RL) segment is slowly recovering after struggling in recent quarters. Revenue for the segment increased by 30% in the first quarter. However, the segment reported an operating loss of $3.8 billion. Management specified that the segment’s operating losses might continue to increase, due to ongoing product developments. 

Management highlighted that the products launched last year, including the mixed reality headset, Quest 3, and Meta AI-powered Ray-Ban Meta smart glasses, are performing well. Threads is also growing stronger, with 150 million active users in the first quarter.

On the balance sheet at the end of Q1, Meta had cash, cash equivalents, and marketable securities worth $58.1 billion and $18.4 billion in debt. The company also had a free cash flow balance (FCF) of $12.53 billion. Notably, Meta has started paying dividends. A hefty FCF balance should allow the company to pay down debt while still paying dividends.

Meta expects capital expenditures to increase next year as it aggressively invests in AI projects. CFO Susan Li noted, “Q1 was a good start to the year. We're seeing strong momentum within our Family of Apps and are making important progress on our longer-term AI and Reality Labs initiatives that have the potential to transform the way people interact with our services over the coming years.”

For 2024, analysts expect Meta’s revenue and earnings to increase by 17.7% and 34.8%, respectively. Trading at 24 times forward 2024 earnings, Meta remains a reasonably priced AI stock to buy now, given the expected AI-led hyper-growth in the coming years. 

Is META Stock a Buy, According to Analysts?

Overall, Wall Street rates META as a "strong buy.” Of the 45 analysts who cover META, 40 recommend it as a "strong buy," one says it's a "moderate buy," three consider it a "hold," and one recommends a "moderate sell."

Analysts have set a mean price target for Meta stock of $526.85, which about 20% higher than current levels. Its Street-high target price of $610 indicates an upside of 38.6% over the next 12 months.

Amazon

Amazon has maintained a stronghold in the e-commerce market, which has been a key factor behind its success. Plus, Amazon Web Services (AWS), the company's cloud computing division, is another significant profit driver for the company. With a wide range of services catering to businesses of all sizes, AWS continues to experience robust growth, contributing significantly to Amazon's bottom line. 

AWS made $24.2 billion in sales in the fourth quarter. AWS revenue also rose 13% year on year. Overall, net sales rose 14% to $170 billion in Q4, with profits increasing to $1.00 per share from $0.03 per diluted share in the year-ago quarter.

Amazon stock has gained 13.4% YTD to outperform the broader market.

AWS currently has a 31% market share in cloud computing, trailing Microsoft's (MSFT) Azure and Alphabet's (GOOGL) Google Cloud. AWS has the potential to help Amazon accelerate its growth as the global cloud computing market grows to $1.26 trillion by 2028.

Furthermore, its subscription service, Amazon Prime, provides members with a variety of offers as well as access to a vast library of digital content. Prime boosts customer loyalty and recurring revenue for the company.

Amazon also generates significant revenue from advertising, which increased 26% to $14.6 billion in the fourth quarter. Amazon's healthy FCF balance of $36.8 billion in 2023 will also allow it to continue investing in AI projects. 

Amazon is scheduled to release its first-quarter results on April 30. Management anticipates  8% to 13% revenue growth in Q1. Meanwhile, analysts forecast a 12% increase in revenue to $142.56 billion. Earnings per share are also expected to increase to $0.83 from $0.31 in the prior-year quarter.

For the full year, analysts forecast Amazon's revenue and earnings to increase by 11.6% and 43.5%, respectively.

Trading at 42 times forward 2024 earnings, Amazon stocks seem expensive. However, given the potential for hyper-growth from AI in the coming years, the premium may be justified. Amazon's ability to innovate, diversify revenue streams, and adapt to changing market dynamics bodes well for future growth.

Is AMZN Stock a Buy, According to Analysts?

Overall, Wall Street is bullish and rates AMZN a "strong buy.” Of the 45 analysts who cover AMZN, 41 recommend it as a "strong buy," three as a "moderate buy," and one recommends a "hold.”

Analysts have set a mean price target for Amazon stock of $208.51, which is 20.6% higher than current levels. Its high target price of $235 indicates a massive potential upside of 35.9% over the next 12 months.

On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.