The first step in stock trading is to open a stock account. Looking forward to 2025, macroeconomic resilience is expected to continue, coupled with the ongoing integration of GenAI technology, which could extend the performance cycle of the U.S. internet sector, particularly in areas such as online advertising, e-commerce, streaming media, local life services, and financial technology. However, variables such as tariffs imposed by the Trump administration, industry regulatory policies, inflation data, and AI technology advancements will likely continue to disrupt and require close monitoring.
On an individual stock level, top internet giants will remain a foundational allocation, and we advise investors to moderately increase their allocation to small and medium-cap stocks in areas such as advertising technology and financial technology to enhance portfolio flexibility. For 2025, the U.S. internet sector maintains an overall optimistic outlook.From a macroeconomic perspective, at this point in time, the risks of the U.S. economy and inflation are relatively balanced, and U.S. consumption remains resilient, approaching a ‘soft landing.’ In terms of valuation, from January 1, 2024, to December 6, the U.S. internet sector has shown strong performance, with Meta, Google, Amazon, Netflix, and Uber seeing increases of 72%, 23%, 41%, 92%, and 23%, respectively. This round of internet asset appreciation is accompanied by economic resilience, cost reduction, and AI application catalysts that have led to upward revisions in performance expectations. Current valuation levels are in line with growth expectations for the next two years, and we anticipate that valuations for 2025 will be a neutral factor but still within a reasonable range.
The continuation of macroeconomic resilience, combined with the commercialization of AI by major companies, the increase in market share of main businesses, the rise in profit margins, and policies of the Trump administration, are expected to be the main catalysts for the internet sector going forward. Online Advertising: With the continuous integration of AI and macroeconomic resilience, revenue growth for 2025 is expected to reach the mid-teens. Global online advertising, as a pro-cyclical sector, has strong certainty driven by macroeconomic resilience, with AI penetration and commercialization providing catalysts. In terms of the overall market, since 2024, the global advertising market has maintained strong performance. We expect that, driven by a soft landing of the U.S. economy, resilient consumer markets, and advancements in AI technology, leading platforms will be able to maintain mid-teens growth in 2025. In terms of AI technology, its impact on advertising is reflected in: 1) increased conversion efficiency leading to price growth, 2) optimization of content recommendation and ad formats leading to increased exposure, and 3) cost optimization. We anticipate that AI will bring additional double-digit revenue growth to internet companies’ advertising business. Ad Tech companies like AppLovin and The Trade Desk, based on data and AI model upgrades, are driving increased advertising efficiency in areas such as mid-tail traffic and CTV, with more significant optimization effects. Attention should be paid to the pace of algorithm updates and iterations.Key areas of focus include US government antitrust policies and overseas company regulations. E-commerce: Concentrate on leading manufacturers, and monitor the potential impacts of tariffs and inflation. Since 2024, the improvement of infrastructure, changes in US consumer structure, and the rapid development of low-price e-commerce have driven the penetration rate upwards, with the competition among e-commerce platforms showing a significant concentration effect at the top; in terms of profits, e-commerce platforms are expected to release profits through revenue dilution effects, optimization of fulfillment efficiency, growth in advertising and subscription revenues, and the development of technologies such as AI.
In Q1/Q2 of 2024, the total US e-commerce volume was $268 billion/$282.3 billion (up 8.4%/6.6% year-on-year), with penetration rates of 20.1%/19.6% (up 2.1/1.8 percentage points year-on-year). Against the backdrop of expected moderate inflation in 2025 and potential tariff increases, investors are paying attention to the impact of price fluctuations and changes in the demand of price-sensitive consumers on the pricing strategies and profit margins of e-commerce platforms. We believe that if the Trump administration significantly increases tariffs, the additional tariff costs for the e-commerce industry may be passed on to consumers, affecting the overall order volume of the industry, but the average selling price (ASP) is expected to stabilize and rebound. Optimization of fulfillment costs, diversified revenues, and corporate tax cuts are expected to offset profit pressures. In terms of the competitive landscape, increased tariff policies may lead to a narrowing price gap between leading platforms and emerging low-price e-commerce platforms. Streaming: Content optimization combined with advertising growth enters the profit release cycle. As of December 9, 2024, the stock performance of leading streaming platforms such as Netflix and Spotify has significantly exceeded the industry average, mainly due to content release, cost optimization, and growth from new businesses such as advertising. We believe that in 2025, with the accelerated release of content on mainstream platforms, content supply constraints will be greatly alleviated. Coupled with macro-level resilience, the possibility of streaming price increases will further increase. Considering that streaming advertising is expected to grow rapidly in 2025, we believe that the US streaming sector will still offer investment opportunities in 2025. Local life: Profit improvement continues, with attention to the disruption of the Robotaxi landscape. In terms of growth, according to Uber’s Investor Day data, the penetration rate of ride-hailing in North America at the end of 2023 was only 7%. We estimate that an increase of 1 percentage point in penetration rate in North America will bring more than a 20% increase in order volume. It is expected that the North American ride-hailing market will continue to grow by more than 20% in 2025, and its growth potential remains. In terms of competitive landscape, according to Bloomberg Second Measure, as of March 2024, Uber and Lyft accounted for about 76%/24% of the North American market. We judge that under the mainstream manufacturers’ operational strategies aimed at profit, the landscape is likely to remain stable.In the realm of Robotaxis, Tesla anticipates the Cybercab to be a significant product in the autonomous taxi sector, with production expected to commence in 2026. Meanwhile, Uber’s ride-hailing platform is intensifying its cooperation with third-party autonomous driving companies and has initiated the trial operation of Robotaxis. We believe that Uber has the potential to maintain its competitiveness in the era of Robotaxis, leveraging its advantages in vehicle supply and user network effects.
Regarding profitability, the room for improvement in ride-hailing profit margins stems from driver incentives, advertising business, membership, and the reduction of fixed costs. In Uber’s 2024 investor day documents, it is projected that the total order value will maintain a growth rate of 15% to 20% over the next three years, with adjusted EBITDA expected to grow at a rate of 35% to 40%, indicating a continuation of the profit improvement trend. Fintech: One of the core beneficiaries of regulatory relaxation. Industry-wise, we anticipate that by 2025, with an economic soft landing and interest rates entering a downward trajectory, the fundamentals are expected to improve, and leading companies will gradually resume growth after industry consolidation. On the regulatory front, the Trump administration has mentioned reducing excessive regulation and establishing a cryptocurrency regulatory framework during the previous presidential term and in this campaign. If regulatory relaxation measures are implemented, it could support financial companies in expanding profits and balance sheets. In terms of profitability, fintech companies are expected to rapidly release their profit potential, with the main drivers being: 1) payment companies like PayPal increasing payment rates, 2) businesses offering more new payment and credit products to consumers, and 3) interest rate cuts leading to optimized funding costs and reduced default rates. Risk factors include: risks from recurring US inflation; risks of valuation decline due to rising long-term interest rates; risks of weakened consumption due to a sluggish US macroeconomy; risks of cash flow and profit pressure due to new business investments; risks from antitrust, data privacy, and other regulatory issues; and risks from changes in industry competition. Investment strategy: We continue to be optimistic about the performance of the US internet sector in 2025 and recommend stock selection based on dimensions such as AI progress, new business growth, market share changes, profitability, and policy friendliness. 1) Internet giants remain the amplifiers of AI and macroeconomics in the US stock market and are still the foundational choice for technology sector allocation. 2) Mid-cap internet companies have the characteristics of accelerated AI penetration and rapid profit improvement, with market competition dynamics being a significant factor affecting stock prices. Want to trade stocks? Open an account first! Choose Oriental Fortune Securities, and manage the market and transactions all in one app. >> (Source: CITIC Securities Research)