Alphabet (GOOG) (GOOGL), with the strong cash flow generated by its online advertising business, continues to invest in emerging fields such as cloud computing, artificial intelligence, and autonomous driving. Its diversified layout and stable valuation give it long-term investment value. Amazon (AMZN), relying on its three pillars of e-commerce, cloud services, and online advertising, maintains revenue growth while continuously optimizing profit margins. The rapid development of its AI chip business adds a new growth driver. Both companies possess deep fundamental strengths and clear long-term strategies, making them worthy of continued attention for investors seeking high-quality growth stocks for long-term holding.
Alphabet’s primary source of profitability is online advertising. When users search for content on Google and YouTube, they are exposed to ads, which generate substantial profits for the company. Google Services revenue, mainly composed of the above two platforms, reached $89.6 billion in the first quarter, up 16% year over year, accounting for more than 80% of Alphabet’s total revenue growth.
Google and YouTube alone are enough to propel Alphabet to a trillion-dollar valuation, but the company’s other businesses make it even more attractive. Due to the high profit margins of its online advertising business, Alphabet can absorb years of losses in other segments and patiently wait for them to grow. Google Cloud is a case in point: after more than a decade without profitability, it has now become a core driver of Alphabet’s long-term growth and is already profitable. Driven by artificial intelligence, Google Cloud revenue continues to accelerate, with first-quarter sales growing 63% year over year.
Alphabet can apply the same strategy to other business areas, including the AI model Gemini and the autonomous driving company Waymo. The company has the capability to seize new opportunities brought by artificial intelligence, and its current valuation is not excessive. A price-to-earnings ratio of 27 is reasonable relative to Alphabet’s fundamental strengths, and this valuation is even below the average level of the S&P 500 index, where most companies in that benchmark do not match Alphabet’s revenue and net income growth rates.
Amazon also operates across multiple industries and has a highly profitable business engine to support expansion into other areas. The company initially established itself as a leading online retailer, offering free two-day shipping for Prime members, a model that other retail giants have since imitated with similar membership programs. The online retail business continues to grow, driving the company’s first-quarter revenue up 17% year over year.
However, a drawback of the e-commerce model is that profit margins are typically low. Walmart and Costco both maintain net profit margins of around 3%, whereas Amazon enjoys double-digit net profit margins. Amazon’s profit margin growth outpaces that of other retailers and e-commerce companies because it is more than just an online retail platform. Amazon Web Services, as a pioneer in the cloud services field, remains an important part of the company’s high-margin business mix. Driven by AI-related tailwinds, this segment saw first-quarter sales increase 28% year over year.
Amazon’s AI chip business is also growing rapidly, with current annualized revenue reaching $20 billion. The success of Nvidia and Broadcom in AI chip sales suggests that Amazon can also achieve high net profit margins—these two chipmakers have net margins close to 70% and 40%, respectively. Additionally, Amazon is boosting its profit margins by expanding its online advertising business on its retail platform, with this high-margin segment growing 24% year over year, exceeding the company’s overall growth rate. If Amazon Web Services and online advertising continue to drive growth, the company’s net profit margin is expected to rise further.
Amazon provided an optimistic outlook for the second quarter, projecting revenue growth of 16% to 19% year over year. The company is expanding into key industries while leveraging artificial intelligence technologies to improve operational efficiency across its existing businesses.
