Jim Cramer Says Buy 2 Trillion-Dollar AI Stocks -- Wall Street Agrees.

Jim Cramer is best known as the host of CNBC's Mad Money and coanchor of Squawk on the Street. But he used to be a hedge fund manager at Cramer Berkowitz, where he earned an exceptional return of 24% annually for 14 years before retiring in 2001.

Cramer recently recommended buying Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) around $344 per share. He also recommended buying Amazon (NASDAQ: AMZN) around $239 a share. Both stocks have dropped since Cramer made the calls, but most Wall Street analysts also think Alphabet and Amazon are undervalued.

• Among 74 analysts, Alphabet has a median target price of $385 per share. That implies 29% upside from the current share price of $299.
• Among 72 analysts, Amazon has a median target price of $285 per share. That implies 31% upside from the current share price of $217.

Here's what investors should know about these trillion-dollar companies.

Image source: Getty Images.

1. Alphabet

The investment thesis for Alphabet centers on its strong presence in digital advertising and cloud computing. As the largest adtech company and third-largest public cloud, Alphabet is primed for strong growth, especially because expertise in artificial intelligence (AI) will likely reinforce its competitive edge in those markets.

For instance, applications like ChatGPT have made it abundantly clear that generative AI will forever alter internet search, but Alphabet's Google Search has adapted with AI Mode and AI Overviews, features built on its proprietary Gemini models. CEO Sundar Pichai says those features are "driving greater usage."

Additionally, while Google Cloud still trails Amazon Web Services and Microsoft Azure, the company has steadily gained market share in recent years due in large part to demand for its Gemini models and custom AI accelerators called Tensor Processing Units (TPUs). In fact, Google Cloud revenue growth has accelerated in three consecutive quarters.

Importantly, while TPUs were initially limited to internal use, Alphabet now monetizes the chips externally. Meta Platforms and Anthropic have signed a multibillion-dollar deal to rent TPUs, and Meta may deploy TPUs in its own data centers by 2027. Alphabet has also signed an agreement with at least one large investment firm to fund a joint venture that will provide TPU-based cloud services.

Wall Street expects Alphabet's earnings to increase 11% annually through 2027. That makes the current valuation of 28 times earnings look rather expensive. But analysts have regularly underestimated the company. Alphabet beat the consensus earnings estimate by an average of 15% in the last six quarters. If that continues, the current price is a reasonable entry point.

2. Amazon

The investment thesis for Amazon revolves around its strong position in online shopping, digital advertising, and cloud computing. The company is leaning on AI to drive growth in all three segments, but the value proposition is particularly compelling in its low-margin retail business, where generative AI is reducing costs by optimizing everything from inventory placement to last-mile delivery routes.

Amazon Web Services (AWS) leads the cloud infrastructure and platform services market with 41% revenue share, according to Gartner. CEO Andy Jassy says that scale makes AWS an attractive platform for AI: "AWS is where the preponderance of companies' data and workloads reside, and part of why most companies want to run AI on AWS." Cloud revenue growth accelerated to 24% in the fourth quarter, the fastest growth in 13 quarters.

Additionally, Amazon has developed custom AI accelerators called Trainium and Inferentia, which support training and inference workloads, respectively. OpenAI recently agreed to consume 2 gigawatts of Trainium capacity as part of a multiyear deal valued at about $138 billion. Jassy says custom chips have achieved an annual revenue run rate of $10 billion, and the business is growing at a triple-digit percentage.

Amazon stock is down 15% from its high, partly because the company announced plans to spend $200 billion on capital expenditures in 2026. But I think investors have overreacted. Heavy spending on AI infrastructure is moving the needle, and Jassy says AWS is monetizing cloud computing capacity as fast as the company can install it. Morgan Stanley recently called Amazon the most underappreciated generative AI winner within its coverage universe.

Wall Street expects Amazon's earnings to increase 15% annually through 2027. That makes the current valuation of 30 times earnings look reasonable, especially when Amazon beat the consensus estimate by an average of 19% in the last six quarters. The current price is an attractive buying opportunity for long-term investors.

Trevor Jennewine has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.