Investors Eye Tech Stocks for December: A Closer Look at Alphabet and Meta

As 2024 draws to a close, many investors are reassessing their portfolios. A common thought is whether to increase their stakes in the technology sector, especially given the strong performance of key players.

Take a look at Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) and Meta Platforms (NASDAQ: META). These two leaders in the internet space have outperformed the S&P 500 over the past five and ten years. Their impressive track records speak volumes.

Here’s why I think these “Magnificent Seven” stocks are still the best tech bets for December.

The Power of Network Effects

Alphabet and Meta have achieved market caps exceeding a trillion dollars due to their strong economic positions. A major factor driving their success is their network effects.

Google Search, owned by Alphabet, commands a 90% global market share and generates 56% of the company’s revenue. This service becomes even more valuable as more users engage, creating a growth cycle that is tough for competitors to match.

Meta’s diverse social media platforms together attract 3.29 billion daily active users, benefiting similarly from network effects. Users are drawn to these platforms because friends and family are already there. A new social media site, even with unlimited funds, would struggle to thrive against established brands like Facebook due to this dynamic.

Additionally, both companies possess extensive data-gathering capabilities, allowing them to gather insightful information about user behavior. This insight is crucial for developing strategies and gives them a competitive edge that few can challenge.

Financial Strength

Both Alphabet and Meta generate significant profits. For instance, Alphabet’s operating margin was reported at 32% in Q3, while Meta boasted an impressive 43%. Their positions in the market allow them to convert a large part of their revenue into profit consistently.

Their balance sheets are remarkably strong, with substantial net cash reserves. This financial health means neither company needs to seek outside funding during unfavorable market conditions, allowing for stable dividends and share repurchases.

Additionally, their robust finances enable both companies to invest in new technologies aggressively. Recently, Alphabet and Meta have focused on enhancing their artificial intelligence (AI) capabilities, whether it be by rolling out new features or increasing computing resources. Their commitment to AI positions them to stay ahead in this rapidly evolving field.

Valuations in Check

It’s crucial to consider company valuations when investing. Fortunately, Alphabet and Meta are reasonably priced right now.

Currently, Alphabet has a forward P/E ratio of 23.1, while Meta is at 27.4. Both ratios are below the tech-heavy Nasdaq-100 index’s forward ratio of 28.3. This makes for appealing opportunities for new investors entering the market.

Furthermore, analysts predict strong growth for both companies. From 2023 to 2026, Alphabet’s earnings per share are expected to rise by an annualized rate of 20.5%, while Meta is forecasted to have a 24.7% growth rate. Together, these growth projections enhance the case for buying these tech stocks this December.

Act Now on a Potentially Profitable Opportunity

Have you ever felt like you missed out on investing in top-performing stocks? If so, listen closely.

Occasionally, our expert analysts issue a “Double Down” stock recommendation for companies that show potential for significant gains in the near future. If you think you’ve already missed the best time to invest, this may be your chance before it’s too late. Here are some successful past examples:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $356,125!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $46,959!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $499,141!*

At this time, we are recommending “Double Down” stocks for three exceptional companies, and the opportunity might not present itself again soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of December 9, 2024

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.