Evercore ISI's Mark Mahaney reveals his top tech stock picks: AMZN, UBER, GOOGL

Key Concepts

• Big Tech Stock Pullback & Rebound: Recent market behavior of major technology companies like Meta, Amazon, Google, and Uber.
• Tariffs & Reciprocal Tariffs: Potential impact of tariffs imposed by the Trump administration on tech companies and retaliatory actions from other countries.
• Valuation: Assessment of whether tech stocks are overvalued or undervalued based on their earnings multiples.
• Inflationary Impact: The potential for tariffs to increase costs for companies and consumers, leading to inflation.
• Dislocated High-Quality Names (DHQ): Stocks of fundamentally strong companies that have experienced significant price declines, creating buying opportunities.
• AWS (Amazon Web Services): Amazon's cloud computing platform.
• Kuiper: Amazon's satellite internet project.
• Robo-Taxi: Self-driving taxi services.

Big Tech Stock Pullback and Rebound

• Pullback: Big tech stocks experienced a pullback after a two-and-a-half-year bull market, with Meta down about 15% in a month from its all-time high in mid-February.
• Valuation Concerns: Valuations of many big tech platforms were considered "reasonably full" or "more than full" at the end of the previous year.
• Negative Catalysts: Policy uncertainty and the potential imposition of tariffs acted as negative catalysts, causing stocks to trade off.
• Rebound: A relief rally occurred due to a perceived moderation in the approach to reciprocal tariffs, reducing pressure on the stocks and their fundamentals.

Impact of Tariffs

• Retaliatory Actions: Tariffs are seen as potential retaliatory actions by other countries against U.S. tech companies, similar to Europe's Digital Markets Act.
• Amazon's Dilemma: Amazon faces the decision of whether to absorb tariff costs through reduced profitability or pass them on to consumers, likely resulting in a combination of both.
• Supply Chain Inefficiencies: Tariffs can create inefficiencies in supply chains that have been optimized over many years.
• Inflationary Risk: Tariffs are considered a tax that can lead to inflation, negatively impacting consumers and potentially reducing demand for some tech companies.

Amazon's Unique Position

• New Product Lines: Amazon has new product lines like AWS, Kuiper, and Alexa Plus, which offer growth potential.
• Attractive Valuation: Amazon, at 25 times earnings, is considered more attractive than it has been in a long time.
• Alternative Scenarios: To justify owning Amazon stock, investors need to consider factors beyond the retail business, such as AWS and other growth initiatives.

Counterarguments to Pro-Tariff Stance

• Innovation: Companies like Google, Meta, and Amazon are highlighted as three of the most innovative companies in the U.S. economy.
• Employment: Amazon is now one of the largest employers in the country, comparable to Walmart.
• Tariff Tax: Tariffs are viewed as a tax that is inflationary and generally not good for consumers.

Dislocated High-Quality Names (DHQ)

• Amazon: Highlighted as a top pick at 25 times earnings due to its attractive valuation and growth potential.
• Uber: Liked due to its pullback related to robo-taxi concerns, with the expectation that Uber will prove to be a robo-taxi winner. Tariffs are considered immaterial to Uber's business.
• Google: Favored at 16 times earnings, with the potential to surprise in terms of cost management and maintaining search market share.

Conclusion

The big tech stock pullback was driven by valuation concerns and the potential impact of tariffs. While tariffs pose a risk to these companies, particularly those with significant retail operations, companies like Amazon have other growth drivers that make them attractive investments. The analyst identifies Amazon, Uber, and Google as "dislocated high-quality names" that offer compelling opportunities at their current valuations. The key takeaway is that investors need to consider the potential impact of tariffs and alternative growth scenarios when evaluating these stocks.