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The Rise of Megacap Stocks in the Era of Artificial Intelligence

This year witnessed a significant surge in the dominance of megacap stocks, notably the “Magnificent Seven”, as they took center stage in the market. The hype surrounding artificial intelligence and concerns over rising rates prompted investors to flock to established tech companies, shaping market action.

As we look ahead to the new year, JPMorgan is steadfast in its belief that there are still substantial opportunities for substantial gains in these high-flying stocks. They have identified some of this year’s major winners as the best investment prospects for 2024.

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JPMorgan analyst Doug Anmuth predicts that Amazon (AMZN) and Google (GOOGL) will continue to outperform. His team anticipates that these companies will reap the benefits of a resilient consumer base and recent investments in generative AI. Additionally, they are optimistic that company-specific fundamentals will play a pivotal role in driving growth next year.

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Anmuth emphasized, “For the consumer-driven Internet sector, consumer spending has proven resilient across virtually all sub-sectors and we believe corporates have a more constructive outlook than a year ago.” He also stressed the preference for companies with solid growth, proven profitability profiles, and reasonable valuation given the current interest rate environment.

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JPMorgan’s optimism extends to Amazon, which they have labeled as their “best idea”, projecting a potential 28% rally from the current close. The growth in revenue within its cloud computing unit, Amazon Web Services (AWS), and the increasing contribution from generative AI investments are anticipated to be key drivers for this growth.

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Amazon’s robust performance, with a 73% year-to-date increase in its share price, has significantly outpaced the S&P 500’s gain of 23%.

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Google also captures JPMorgan’s attention as they expect improved ad growth, expanding margins, and a new AI push to drive the stock’s performance.

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Additionally, Uber (UBER) is identified as a top pick due to the rising demand for mobility and food delivery, especially in newer verticals like groceries. The team also highlights other internet themes that are poised for growth, including streaming, e-commerce, and online travel.

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In conclusion, JPMorgan’s outlook for 2024 suggests that megacap stocks, particularly those leveraging AI and consumer-driven internet technologies, still hold significant potential for investors. Their recommendations provide valuable insights into potential investment opportunities in the coming year.

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