North American internet stocks pulled back, and the debate over capital flows between AI hardware and AI software remains the core trading theme

Overview

This report is Morgan Stanley's interactive comparable companies table for the North American internet sector, focusing on where internet company valuations and short-term price performance stand amid the debate over capital flows between AI hardware and AI software. The report covers large internet platforms and related sub-sectors such as digital advertising, travel/shared economy, and real estate tech, and includes regulatory disclosures and rating definitions.

Core views

The core message is that the internet sector has recently come under broad pressure, declining 5% over the week, matching the drop in the NDX and underperforming the SPX. Among large internet stocks, AMZN and META saw larger declines, but their 2026 earnings multiples are now trading at discounts to historical averages, especially META, whose 18x 2026E EPS multiple is 27% below its TTM average. The sector view is Attractive, implying that analysts hold a positive view on relative performance versus the benchmark over the next 12-18 months.

Analysis framework

The report mainly uses a comparable companies table and relative valuation methodology, comparing North American internet companies horizontally across metrics such as price performance, earnings multiples, and EV/EBITDA, while using discounts to historical averages to assess current trading levels. At the same time, the report notes that treating stock-based compensation, or SBC, as a cash cost would materially change the valuation framework for some companies.

Methodology notes

• Valuation ComparisonComparable Companies Table

  Cross-sectional comparison of price performance and valuation multiples of North American internet companies

  The report assesses current market positioning through weekly price moves, 2026 EPS multiples, and deviations from historical averages for large internet stocks and related sub-sectors.

• Valuation Basis AdjustmentSBC Cash Cost Adjustment

  Treating stock-based compensation as a cash cost

  In the travel, shared economy, and real estate tech sample set, treating SBC as a cash cost would increase EV/EBITDA multiples by about 44% on average, indicating that headline valuations may understate true costs.

• Rating SystemMorgan Stanley Relative Ratings and Industry View

  Relative assessments such as Attractive, Overweight, Equal-weight, and Underweight

  Attractive means analysts expect the sector coverage universe to deliver attractive performance relative to the relevant broad market benchmark over the next 12-18 months; this input does not disclose META's individual target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• META PLATFORMS INC (META.US)

  One of the large North American internet platform stocks mentioned in the report.

  Strengths

  2026E EPS is about 18x, 27% below its TTM average, implying a discount relative to its own historical valuation.

  Weaknesses

  Down 6% over the week, facing valuation volatility amid the internet sector pullback and the debate over AI capital flows.

  Comparison

  AMZN/GOOGL/META are trading at 2026E EPS multiples of 26x/25x/18x, respectively, with META showing a larger historical discount than AMZN and GOOGL.

  Risks

  Ad growth, returns on AI capital spending, regulatory pressure, and shifts in market risk appetite may affect valuation recovery.

• Amazon.com Inc (AMZN)

  A large-cap North American internet stock comparison sample.

  Strengths

  2026E EPS is about 26x, 19% below its TTM average.

  Weaknesses

  Down 9% over the week, making it one of the main decliners highlighted in the report.

  Comparison

  Its decline was larger than META's -6% and GOOGL's -3%.

  Risks

  AI investment, expectations for retail and cloud businesses, and shifts in risk appetite toward high-valuation assets.

• Alphabet Inc. (GOOGL)

  A large-cap North American internet stock comparison sample.

  Strengths

  Down 3% over the week, showing greater resilience than AMZN and META.

  Weaknesses

  2026E EPS is about 25x, only 2% below its TTM average, implying a limited discount to historical valuation.

  Comparison

  GOOGL declined less than AMZN/META, but its valuation discount to historical averages is also the smallest.

  Risks

  Digital advertising growth, AI competition, search share, and regulatory factors may affect valuation.

• North American internet sector

  The core industry coverage universe of the report.

  Strengths

  The industry view is Attractive, indicating analysts are positive on relative performance versus the benchmark over the next 12-18 months.

  Weaknesses

  The sector fell 5% over the week, matching the NDX decline and underperforming the SPX.

  Comparison

  Internet sector -5%, SPX -3%, NDX -5%.

  Risks

  Capital rotation between AI hardware and software, valuation repricing, SBC cost treatment, and macro risk appetite may all affect sector performance.

Key data

• One-week performance of the internet sector-5%The SPX/NDX were -3%/-5% over the same period.
• One-week performance of AMZN/META-9%/-6%These were the main drags mentioned in the report.
• One-week performance of GOOGL/RDDT/APP/PINS-3%/-1%/-9%/+7%This shows divergence within North American internet and related platform stocks.
• 2026E EPS multiples of AMZN/GOOGL/META26x/25x/18xThese are 19%/2%/27% below their respective TTM averages.
• Impact of SBC cash treatmentAverage EV/EBITDA increases by about 44%Applies to the travel, shared economy, and real estate tech sample in the report.
• Industry viewAttractiveMorgan Stanley's view on relative performance versus the benchmark for the sector coverage universe over the next 12-18 months.

Impact & implications

The report's investment implication is that AI-related capital rotation between hardware and software will continue to influence internet stock valuations, but some large internet platforms are already trading at discounts relative to their own historical valuations. For META, the input data show a 6% weekly decline and a 2026E EPS multiple of about 18x, 27% below its TTM average, making its valuation recovery potential highly sensitive to returns on AI investment, the ad cycle, and changes in risk appetite.

Risks

• The debate over capital flows between AI hardware and AI software may continue to amplify valuation volatility in internet and software stocks.
• Large internet stocks have recently come under broad pressure, with AMZN, META, and APP posting larger declines, indicating weaker risk appetite.
• Treating SBC as a cash cost would materially raise EV/EBITDA multiples for some internet-related companies, reducing the apparent attractiveness of valuations.
• Morgan Stanley discloses investment banking, shareholding, or service relationships with multiple covered companies, and investors should apply independent judgment in light of these conflict-of-interest disclosures.

What to watch

• Whether the earnings multiples of AMZN, GOOGL, and META continue to trade below their own historical averages.
• Whether capital rotation between AI hardware and AI software changes the relative performance of the internet sector.
• Relative price performance across sub-sectors such as digital advertising, travel/shared economy, and real estate tech.
• The impact of SBC cash treatment on EV/EBITDA valuation comparisons.
• Whether Morgan Stanley Research subsequently updates individual stock ratings, target prices, or earnings forecasts.