With the second-quarter earnings season beginning to gain steam, Evercore ISI's Mark Mahaney has updated his list of tactical calls. Mahaney, head of internet research at the firm, remains "compound constructive" on the large-cap internet sector for the rest of the year. Although the broader technology sector's 34% rally in 2024 has "largely removed the opportunity for material multiple expansion for the next 12 months," the analyst thinks valuations are now at a sustainable level.
"Fundamentally, we see most Internet verticals experiencing consistent or improving demand trends in '24 as well as ongoing margin expansion driven by greater cost consciousness — i.e. a more mature embrace of sustainable profitability.
And capital allocation in terms of share repos and dividends has become more shareholder friendly," Mahaney wrote in a Sunday note. The analyst made several changes to his list of top large-cap longs: Alphabet and Uber Technologies have been bumped up to the top of the list, and Shopify is the latest addition to the list, with the removal of Amazon and Expedia Group. Alphabet is expected to post a "modest" beat in the second quarter and is one of the lowest-risk names this earnings cycle, per Mahaney.
He thinks the company's generative artificial intelligence integrations into Google Search have been "underappreciated by investors." YouTube's gaining strength as a streaming platform is another tail wind for the stock, he added. "We believe Street estimates have ye.