Amazon Outshines Meta as Hyperscaler Stocks Face Different Challenges

Amazon (NASDAQ:AMZN) and Meta Platforms (NASDAQ:META) are two hyperscaler stocks that have been making significant investments in artificial intelligence. According to Envision Research, Amazon's infrastructure plays a crucial role in powering the AI boom, with AWS benefiting directly from high demand for computing capacity.

Meta, on the other hand, is using AI to enhance its advertising business and build out its own capabilities. However, the investor believes that recent developments have affected their risk-reward profiles differently.

Amazon's valuation is relatively attractive at around 20x earnings, with a forward PEG ratio of approximately 1x. The company's return on capital employed (ROCE) has averaged around 43% over the past five years and reached about 54% on a trailing-twelve-month basis.

Envision Research sees Amazon as a compelling growth-at-a-reasonable-price (GARP) opportunity, with the potential to generate double-digit annual returns if it maintains a 54% ROCE and reinvests around 10% of its earnings. Recent results show strong growth, with Q2 revenue increasing nearly 20% year over year.