My Top 2 "No-Brainer" Stocks to Buy With $1,000 Right Now

Key Points

• No-brainer stocks should be high-quality businesses trading at a cheap price.

• Alphabet is trading at an earnings ratio below most stocks and has many ways to grow due to AI.

• Amazon stock looks expensive but should see a profit margin inflection over the next few years.

• 10 stocks we like better than Alphabet ›

When buying blue chip no-brainer stocks, you want steady growth, a reasonable valuation, and good management teams. Two large-cap technology stocks fit this bill right now in Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Amazon (NASDAQ: AMZN). These stocks have multiple growth tailwinds that will help them sustain earnings power for years to come due to artificial intelligence (AI), cloud computing, and online shopping.

Here's why Alphabet and Amazon are my no-brainer stocks to buy with $1,000 right now.

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Image source: Getty Images.

Consumer AI and cloud

Alphabet has many irons in the fire when it comes to AI and consumer internet products. There is the perennial Google Search, which generates around $200 billion in revenue a year and is adding AI tools to its queries at a rapid pace. Then there are Google productivity tools such as Maps, email, and Google Workspace, YouTube, Waymo, and the Gemini chatbot.

This ecosystem of products feeds on itself by ingesting data into Alphabet's AI training labs, which have some of the best engineers and scientists in the world. This is why Alphabet's Gemini chatbot is growing like a weed, Waymo is the only scaled self-driving car start-up, and YouTube has incredible scale in video content and discovery.

We cannot forget Google Cloud, either. Google Cloud is Alphabet's division that sells its advanced computing infrastructure, data centers, and processing power to third parties such as AI start-ups. This is the fastest-growing division within Alphabet, posting 28% year-over-year revenue growth last quarter.

Cloud computing, consumer internet, and AI products will see steady tailwinds in the coming years, and Alphabet will benefit from it. You can buy the stock today at a price-to-earnings ratio (P/E) of 20, which is well below the S&P 500 index average. For me, this makes the stock an easy buy for market-beating returns over the next decade.

GOOG PE Ratio data by YCharts

E-commerce and cloud

Amazon has a slightly different, albeit maybe more optimistic, avenue for growth. It owns a cloud computing division -- the largest in the industry -- with Amazon Web Services (AWS). This represents the majority of Amazon's profit pool right now, generating more than $100 billion in revenue and more than $41 billion in operating income. Amazon does not have the same expertise in AI as Alphabet, but AWS should benefit from the tailwind in cloud computing and AI spending, where start-ups need massive amounts of computing power to operate.

Outside of AWS, there is the legacy e-commerce marketplace that was Amazon's original business model. In North America, Amazon's retail sales reached close to $400 billion over the last 12 months. E-commerce is still less than 20% of overall retail sales in the United States, giving the sector an overall tailwind that Amazon can take full advantage of.

Plus, the company is finally starting to flex its profit muscle with e-commerce and logistics. Over the last decade, it has fully integrated its commerce and media offering with Prime Video, logistics, advertising, and third-party seller fees. These are higher-margin services that will enable the company to expand its profit margins, which has already begun in the last few years coming out of the pandemic. Operating margin for North American retail was 6% over the last 12 months, and I think it can greatly expand in the years to come.

As it historically has, Amazon stock trades at a premium P/E ratio of 37. However, this is underestimating the future operating leverage inherent in its operations. AWS will likely grow quickly, as will the profit margins in e-commerce due to what was discussed above. The company is generating $650 billion in annual revenue with an 11% profit margin. If this revenue can grow to $1 trillion and profit margins expand to 20% over the next five years, that is $200 billion in annual earnings.

Today, Amazon has a market cap of $2.4 trillion, which would bring its P/E ratio close to 10 with $200 billion in annual profits. That makes Amazon a blue chip stock you can buy with confidence at today's prices.

Should you invest $1,000 in Alphabet right now?

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brett Schafer has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.