Goldman's top internet picks for the second half include 2 struggling 'Mag 7' names

Goldman Sachs identifies Amazon and Alphabet as top internet stocks poised for a second-half rebound, despite both underperforming the S&P 500 year-to-date amid market volatility and regulatory concerns. Goldman anticipates artificial intelligence to be a key growth catalyst for both companies, with a price target of $220 for Alphabet (27% upside) and $220 for Amazon (7% upside); however, realizing this upside depends on the companies demonstrating the utility of their AI investments and navigating tariff-related challenges.

Analysis

Despite a challenging first half of 2025, where Amazon (AMZN) and Alphabet (GOOGL) shares declined approximately 6% and 9% respectively, underperforming the S&P 500's near 1% gain, Goldman Sachs identifies both as top internet segment picks poised for a rebound. This underperformance is attributed to broader market volatility stemming from President Donald Trump's trade war, concerns over a potential U.S. economic slowdown, and burgeoning national debt interest expenses. Goldman analyst Eric Sheridan projects artificial intelligence (AI) as a significant, continuous growth catalyst, though its impact on displacing existing computing habits is expected to be gradual. For 2025, the focus intensifies on platforms demonstrating tangible adoption, utility, and use cases from their substantial AI investments, particularly as they enter the third year of an elevated OpEx/CapEx cycle. Specifically for Alphabet, regulatory headwinds from the Justice Department's anti-monopoly investigation have overshadowed strong search segment revenue and robust profit margins; Goldman's $220 price target implies a roughly 27% upside from its $172.90 close. Regarding Amazon, concerns about tariff impacts on its e-commerce business are seen by Goldman as potentially obscuring growth opportunities in AI, cloud computing, retail media, streaming, and sports rights, with the firm believing Amazon can mitigate tariff costs and gain market share, targeting a $220 price which suggests a 7% upside from its $206.02 close. Goldman also maintains 'buy' ratings on Meta Platforms, Spotify, and Uber within its coverage.

Key Decisions for Investors

• Investors should consider the potential for a second-half 2025 rebound in Amazon and Alphabet, driven by anticipated AI catalysts and an expected easing of short-term concerns, aligning with Goldman Sachs' positive outlook.
• Closely monitor upcoming earnings and company communications from both Amazon and Alphabet for 'proof points' on the adoption, utility, and return on investment of their AI initiatives, as these will be critical for validating the bullish thesis.
• Factor in specific risks: for Alphabet, the ongoing Justice Department investigation and its potential outcomes; for Amazon, the actual impact of tariffs on its e-commerce segment and its ability to leverage pricing or negotiation to mitigate these costs.
• Evaluate the differing upside potentials presented by Goldman Sachs' price targets (Alphabet ~27%, Amazon ~7%) when considering allocations, while remaining cognizant of persistent market volatility and macroeconomic headwinds.