Hyperscaler Rally: 4 Stocks to Buy Before It's Too Late

After being stuck in the mud as investors worried about capital expenditures (capex), hyperscaler stocks (companies that own large data centers) are finally starting to rally. Let's look at four to buy now while their valuations are still reasonable.

1. Amazon

Amazon (NASDAQ: AMZN) stock has been on fire ever since the company reported strong Q2 results in late July. The company's cloud computing unit, AWS, is seeing accelerating growth, and its custom chip business is gaining strong traction.

AWS Q2 revenue surged 37% to $42.2 billion, while its operating income soared 63% to $16.6 billion. Meanwhile, the company said its chip and AI businesses have both reached $25 billion revenue run rates.

The company's e-commerce business also continues to hum along, with solid revenue growth and nice operating leverage. The efficiency gains the company has seen in this business are often overlooked, but Amazon is using AI to reduce costs and shorten delivery times. It is also the world's leading manufacturer and operator of robots.

The stock remains attractively valued for now, trading at a forward P/E of 24 times, making it a great stock to buy even after its recent rally.

2. Meta Platforms

Few companies have been as good at implementing AI throughout their core businesses to drive growth as Meta Platforms (NASDAQ: META), and the social media giant once again demonstrated that in Q2. Meta saw its revenue spike 28% in Q2. Ad impressions climbed 14%, and the average price per ad rose 12%.

AI is helping improve the user experience, keeping users on its apps longer, connecting advertisers to customers more effectively, and improving conversions. Meanwhile, Meta Platforms is looking to personal AI agents as its next big growth driver. The company also sees an opportunity to create its own cloud computing business, which could help increase its flexibility.

With the stock trading at a forward P/E of below 17 times 2027 estimates, it is way too cheap for a company with its growth and opportunities.

3. Alphabet

While its stock didn't get an initial lift after earnings, Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) arguably had the best quarter among the hyperscalers. Google Cloud revenue skyrocketed 82% to $24.8 billion, while segment operating income more than tripled to $8.8 billion. Meanwhile, its core search business continues to prosper, with revenue up 17%, driven by more queries from AI-powered solutions like AI Overviews and AI Mode.

Meanwhile, Alphabet has one of the biggest advantages in the space through its high-performance Tensor Processing Units (TPUs), giving it a significant cost advantage in both inferring and training its own AI models. It also has a significant opportunity to sell these chips for use outside Google Cloud, with Anthropic ordering large numbers of TPUs through its codeveloper partner, Broadcom.

As the most complete AI company, with both its own top-tier chips and frontier model, Alphabet stock is attractively valued, trading at an 18 times forward P/E.

Image source: Getty Images.

4. Microsoft

Microsoft (NASDAQ: MSFT) helped change the bearish narrative last quarter, as its Azure cloud computing unit and enterprise software business both continued to grow strongly. Investors worried that Microsoft's software-as-a-service (SaaS) business would be pressured by AI. Still, given how ingrained its platform is in enterprises and how quickly its AI assistant, Copilot, has grown, it looks like the company is well-positioned to play a major role in the future of AI.

At the same time, Azure continues to be a growth machine, with revenue climbing 43% in its recently ended fiscal Q4. With the largest cloud computing backlog in the space, sitting at $678 billion, Microsoft has strong visibility into future Azure growth.

Trading at 20 times the fiscal 2028 (ending June 2028) earnings consensus and with a 27% stake in OpenAI, the stock continues to look attractive even after its big rally.

Geoffrey Seiler has positions in Alphabet, Amazon, Broadcom, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.