Evercore ISI's head of internet research, Mark Mahaney, struck a cautious near-term tone on Big Tech while highlighting attractive valuations and long-term upside driven by AI.
Analyst Sees 'Dislocated High Quality' Bargains in Amazon and Meta
MarketDash
Evercore's Mark Mahaney warns of a muted Q2 for Big Tech due to ad budget cuts but highlights Amazon and Meta as undervalued opportunities with major AI-driven upside.
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Muted Q2 Outlook On Ad Budget Cuts
Mahaney said on CNBC's 'Squawk Box' on Wednesday that he expects a softer second quarter as advertising budgets begin to tighten. Based on channel checks, he noted that companies are already trimming second-quarter spending, particularly in brand advertising, which typically gets cut first during periods of uncertainty.
He said these cuts could affect platforms reliant on both brand and performance marketing. While he emphasized that this reflects cautious corporate behavior rather than structural disruption, he expects companies to guide more conservatively for the June quarter if current conditions persist.
Valuations Attractive Despite Macro Headwinds
Mahaney said several major tech stocks now trade at near trough multiples, calling them "dislocated high-quality" opportunities, particularly Amazon.com Inc (AMZN) and Meta Platforms Inc (META). He noted that despite macro uncertainty, investors are likely to step into these names given their quality and valuation.
He also highlighted a recent ~20% rally in Amazon's stock, driven by improving sentiment around its AI positioning, and compared the potential re-rating to Alphabet Inc (GOOGL), which previously saw its valuation expand from about 15x to 30x earnings.
AI Investment Cycle Drives Long-Term Upside
Mahaney said rising capital intensity reflects an ongoing investment cycle rather than a structural shift in tech economics. He expects 2026—or potentially 2027—to mark either the peak CapEx intensity or the trough in free cash flow, after which spending growth should moderate.
Over a three- to five-year horizon, he believes companies can return to high returns on invested capital, supported by a significantly larger AI-driven opportunity. Despite near-term caution, he said the long-term setup remains compelling for investors willing to look beyond short-term volatility.
Price Action: Meta Platforms shares were up 1.78% at $674.27, Alphabet shares were trading at $332.89, and Amazon.com shares were down 0.44% at $247.93 at the time of publication on Wednesday, according to market data.
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