Wedbush Securities Managing Director Scott Devitt has initiated coverage on eight tech stocks including Meta (META), Alphabet (GOOGL), Amazon (AMZN), Shopify (SHOP), and Pinterest (PINS). Devitt says Alphabet will benefit from AI, ad innovation, and YouTube, while Meta, another AI play, will benefit from Instagram, which "should cross over 50% of revenue by 2025." Devitt likes Amazon because of its AI and cloud businesses, in addition to the recovery in retail and its growing ad business. Watch the video above to see what Devitt had to say about Shopify and Pinterest.
Video Transcript
SEANA SMITH: Now, you're initiating coverage on eight stocks today. We wanted to do it a bit differently since football season is right around the corner. So let's put together your starting lineup, stocks that you've given an outperform rating to, starting with two names that you say are well positioned for AI growth-- Alphabet and Meta. We're putting 30 seconds on the clock. Give us your bull case for both.
SCOTT DEVITT: Thanks. Thanks for having me. So first on Alphabet, performance max continues Alphabet's long history of ad innovation. Helps to take the company beyond cookie attribution. That's the first point. Second, AI integration and search will be additive to the user experience.
Third, YouTube's a dominant business that's as big as Netflix in revenue. YouTube TV's by far the best TV experience. And this is underappreciated within the Alphabet stock. And finally, four, AI will be beneficial for all the hyperscalers, including Google's Compute Engine.
SEANA SMITH: And--
SCOTT DEVITT: Second on Meta-- I was going to say, on Meta, if I could--
DIANE KING HALL: Go ahead.
SCOTT DEVITT: --the-- so they've had issues on the heels of Apple privacy changes. And that's been addressed by innovations such as Advantage+ that helped to close the gap created by the loss and attribution. Second, AI is going to drive the next cycle of connectivity for Meta. And finally, Instagram should cross over 50% of revenue by 2025. And I know I exceeded the 30-second limit.
DIANE KING HALL: You did.
SCOTT DEVITT: But I feel like--
DIANE KING HALL: But that partly that--
SCOTT DEVITT: Yeah, Meta did, too.
DIANE KING HALL: Part of that was my fault.
SCOTT DEVITT: The two shots, yeah.
DIANE KING HALL: I jumped the gun--
SEANA SMITH: I think I should have given you a little bit more time there.
DIANE KING HALL: I think so, too.
SEANA SMITH: That was a tall task.
DIANE KING HALL: And plus, like, you had a preamble. So they did put a-- they-- you know, they held the clock for a little bit before starting the clock. I was like, oh, that's fair because he's like, thank you for having me.
SCOTT DEVITT: 15-yard penalty.
DIANE KING HALL: Exactly. Now, we won't set you back 10 yards-- 10 yards. That's all. So whatever. You still have time. But I just want to quickly ask you, though, just, you know, the risks, though, for, say, Alphabet. Are there any concerns to your case when you think about, for instance, they have some antitrust issues coming up? In September, they have a potential-- a trial to face then.
SCOTT DEVITT: They have-- all these companies have antitrust issues. And yet, they're all great, innovative companies that provide better consumer experiences along the way. So that battle between government and the dominance that's created by consumer centricity is always an interesting one. And I'm kind of more on the side that the companies win in the end, and the governments back away or do things that aren't prohibitive to overall growth in the franchises.
The other thing with Alphabet, you know, to keep in mind is that generative AI search results are more expensive. So as the user experience improves in search, that the costs may go up. But my view on that is as search improves, then volume improves. And that offsets the incremental cost of running the higher cost generative AI search results.
DIANE KING HALL: OK, I forced you to play and analyze. All right, Scott, back to game. You're initiating coverage on Amazon to an outperform rating with a price target of $180. The scott-- the stock currently trading a little over 135 bucks a share. This time, 20 seconds on the clock.
SCOTT DEVITT: Oh, my gosh.
DIANE KING HALL: What's your pitch? Maybe we'll give you a little extra there. Go.
SCOTT DEVITT: OK, so Amazon was forced to build the peak pandemic. It's taken a bit of time to grow into that infrastructure. We're finally-- they're gross improving, products arriving faster, and margins are improving. Also, it's becoming a solid third in the ad market. And finally, AWS is stabilized. So we're seeing the numbers and the narrative on Amazon in the very early stages of shifting back to what this company has always become, which is dominant.
DIANE KING HALL: Nailed it.
SEANA SMITH: Scott, there has been-- I'm going to follow up there. Because when we're talking about AWS, that certainly has been the story when we talk about Amazon. There's been lots of talk just about the slowing growth in AWS. Clearly, that's not a new story, a new headline out there for anybody. But has some of those fears then been overblown just in terms of what this is going to mean for Amazon in the future?
SCOTT DEVITT: It's interesting. With each of these mega cap consumer technology companies, you have the reality of the business-- what the numbers are saying at that very moment and the narrative that's built on that. And Amazon's the company that's been put through the ringer more recently--
SEANA SMITH: Yeah.
SCOTT DEVITT: --for two reasons. One is this retail business was built up to peak because it had to be. So when the business underperformed post peak because demand for its services were declining because consumers were preferring to go outside and to purchase services over goods, then all of a sudden, it was as if Amazon did something wrong. They didn't do anything wrong. They just had to build the business to a peak that was for once in a 100-year pandemic.
So now, they're growing back into it. Products are getting to customers faster. Top line is recovering. Margins are expanding. And, oh, by the way, AWS, which was also slowing because the consumption of its customers was slowing because the economy was slowing, is now beginning to stabilize.
So as the fundamentals start to improve, we think that narrative kind of shifts back to what Amazon always has been, which is dominant in retail, very well positioned, number three in advertising, and a very strong number one in web services.
SEANA SMITH: All right, let's stick with e-commerce here. You've got an outperform rating on Shopify, a $62 price target. This is a stock that's also done significantly well since the start of the year, up over 60%. What's the catalyst going forward?
SCOTT DEVITT: So Shopify invested in a logistics business to offer services that more directly competed with Amazon for its customers. It failed miserably in that area. And it moved on. So it's back to being a capital-light, high-margin model offering connections to third-party logistics offerings for its merchants. And in addition and probably most importantly, it just opened up its Shop Pay service to merchants outside of the Shopify network. And in doing that-- I apologize. There was some background noise. So I'm going to-- I'm going to take an extra 5 seconds.
SEANA SMITH: That's right. Take it back.
SCOTT DEVITT: The Shop Pay offering has now been opened in the way that PayPal was opened in the early days from eBay to all merchants. And we think this is a very critical kind of moment of adoption for its payment services that's going to allow Shop Pay to be much more competitive in the payments ecosystem. That's going to be a catalyst for the stock.
DIANE KING HALL: All right, we're going to put some more time on the clock for another one that we want to look at from your list. We're looking at Pinterest. You've got a neutral rating with a $30 price target. We're going to put 20 seconds on the clock to tell us what the case is, why you're neutral on Pinterest now.
SCOTT DEVITT: So it should benefit from the integration of ad placement technology such as a deal that it recently has done with Amazon. The challenge that we have with it is the addressable market, how big can this company be over time. Having said that-- so one good, one bad-- it's a very strong management team. And the product itself is very good. So we like the stock. There's just not enough to get it over the hurdle to be an outperform rating.
SEANA SMITH: There you go, Scott, getting it in all under 20 seconds. I was going to say, next time you come on, if we play this again, we got to give you a little bit more time. But still, a very, very impressive go. Scott Devitt of Wedbush, thanks so much. We look forward to having you back.
