Goldman Sachs is cautiously optimistic on internet stocks. Here are its favorite picks

Published Mon, Sep 13 20216:11 AM EDTUpdated Mon, Sep 13 20218:55 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

There is still room to run for internet stocks that have dominated the market in recent years, but investors should get more selective, according to Goldman Sachs. A team of Goldman analysts led by Eric Sheridan initiated coverage of the internet sector, saying in a note to clients that they foresee more growth but some stocks may be overpriced. "In our view, the industry still has ample opportunities for secular revenue growth & increased operating efficiencies on the back of building scale in the coming years," the note said. "That being said, we are not uniformly bullish given the fact that many companies either have forward growth more than priced into their equity at current levels, in our view, and/or we see a more neutral/negative risk/reward in a handful of names." Goldman used a 10 factor framework for evaluation stocks in the sector, including market share dynamics, unit economics and regulation. The firm gave buy ratings to seven stocks, including Big Tech giants Amazon , Alphabet and Facebook , which Goldman said should continue to be a winner even as some of these tech business models converge. "We see Facebook as one of the companies most levered to the theme of the blurring of the lines between commerce and advertising and many of its key properties have already begun the transformation to embrace social commerce," the note said. Goldman also gave buy ratings to Snap , Uber , Lyft and Expedia , which should see some of its internal improvements bear fruit as the travel industry recovers from the pandemic, Goldman said. "We are optimistic about the medium/long-term trajectory of Expedia's operating margins on the back of management's actions addressing its less efficient cost structure & levels of spending in the last 3-5 years (pre-COVID)," the note said. On the negative side, Goldman gave sell ratings to Airbnb and Twitter . For Twitter, Goldman said it is unlikely the company can reach its stated revenue goals. For Airbnb, the firm said the company's stock seems expensive considering the uncertainty around the travel sector recovery, among other factors. -CNBC's Michael Bloom contributed to this report.

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There is still room to run for internet stocks that have dominated the market in recent years, but investors should get more selective, according to Goldman Sachs.