Goldman and Citi love these two beaten-down tech giants and expect them to rebound in 2023

Published Wed, Dec 14 20223:17 AM EST

The technology sector has been slammed in 2022, but that has left opportunities for investors to snap up discounted stocks heading into next year. "While we recognize the multiple challenges facing the broader Internet sector, we continue to believe the long-term secular advantages outweigh those in the short term," wrote Citi analyst Ygal Arounian in a Dec. 12 note. "Internet has seen meaningful underperformance in 2022 as multiples moved from all-time highs to all-time lows, coupled with material downward estimate revisions for many companies across our coverage." At the same time, however, the core drivers of the internet sector have not changed, and there is opportunity in the group over time, Arounian said. He reiterated that Amazon remains Citi's top pick in the space, and Meta Platforms the second. Goldman Sachs also sees potential in pockets of technology. "We see the most compelling risk/reward in the group among a collection of large cap companies that have many of the same narratives in common," wrote Eric Sheridan in a Dec. 13 note. Those narratives include well-established and scaled end-market positioning, the ability to manage for improved margin trajectory in 2023 and beyond, as well as a "wall of worry" that has become more pronounced in the past six months. Goldman's top picks include Amazon and Meta. Top pick - Amazon Amazon has enjoyed bullish ratings from Wall Street even as it's plunged roughly 45% year to date. While Citi recognizes that there are demand challenges facing Amazon, especially in its retail business. Still, it believes that the company can continue to gain wallet share even amid economic uncertainty. In addition, "adoption of AWS can accelerate through improved operating efficiencies and hiring freezes can deliver improving operating income," Arounian wrote. Citi has a buy rating and $145 price target on the stock. Shares ended Tuesday's session at $92.49, up about 2% for the day. Goldman Sachs also sees a buying opportunity for Amazon as one of its own top picks, with a buy rating. The stock has seen multiple years of underperformance as margins have absorbed the Covid pandemic and ensuing macroeconomic headwinds, according to Sheridan. In addition, the company is benefiting from the "rising utility nature of the shopping habits of the Prime user base, cross platform narratives building across advertising and media consumption," he said. Amazon has the potential for margin self-repair in 2023 and beyond, plus a well-established multi-year secular growth opportunity for AWS, Sheridan added. Top pick - Meta Meta Platforms is Citi's second pick in technology – the company has a buy rating and $168 price target on the stock. The social media giant has suffered this year, sliding nearly 65% in 2022. Shares ended Tuesday higher, rising 4.7% to close at $120.15 "While IDFA challenges persist amid elevated operational and capital expenses, given improving engagement trends across Feed, Stories, Reels, and Messenger, we believe Meta is delivering greater meaningful social interaction (MSI) across its user base, making it more relevant," said Arounian, referring to a major privacy change Apple made to its iOS operating system last year. "This as its advertising platform is rebuilt for a post-IDFA environment and demand for newer ad products like Reels, Click-To-Message, and Advantage+ attract incremental advertising dollars," the analyst said. Goldman is also bullish on Meta. While there is a "downside scenario for core business and fears over investment cycle increasingly priced into shares; large elements of engagement and consumer utility remain mostly unmonetized," said Sheridan. Those include messaging and short-form video, the core product is exiting 12 to 18 months of headwinds from Apple privacy changes and advertiser slump in long-tailed eCommerce and other growth categories, he said. Goldman also has a buy rating on Meta. -CNBC's Michael Bloom contributed to this story.