North American internet sector rally leads, while micro valuation still needs to be viewed alongside macro risk

Overview

This report is Morgan Stanley's update on trading positioning and valuation for the North American internet sector, under the theme 'Further Micro vs Macro'. The core message is that internet stocks have recently outperformed the broader market, led by META, GOOGL, AMZN, and names such as SNAP, RDDT, RBLX, and U. The material is more focused on sector trading and comparable valuation tracking than on a deep-dive single-company report.

Core views

The key message is that short-term risk appetite has improved for the internet sector, with the group as a whole rising more than the SPX and NDX. The leading names META, GOOGL, and AMZN remain the main points of attention, but their valuation levels versus historical averages are mixed. For travel, shared economy, and real estate tech companies, treating stock-based compensation as a cash cost would lift EV/EBITDA multiples materially, underscoring the need to handle earnings quality and valuation comparability carefully.

Analysis framework

The analysis mainly compares one-week price performance for the sector versus indices, reviews a comp sheet for internet companies, compares AMZN, GOOGL, and META's NTM or 2026 EPS valuations against historical averages, and assesses how EV/EBITDA multiples change after adjusting for stock-based compensation as a cash cost.

Methodology notes

• Valuation comparisonComparable company valuation

  Compare valuation multiples and market performance across internet companies using a comp sheet.

  The report cites the 'Internet Comp Sheet: North America' and highlights AMZN, GOOGL, and META's 2026 EPS multiples and their deviations from trailing-twelve-month averages.

• Valuation adjustmentEV/EBITDA and stock-based compensation adjustment

  Revisit EV/EBITDA multiples after treating SBC as a cash cost.

  The report notes that for travel, shared economy, and real estate tech companies, treating stock-based compensation as a cash cost raises EV/EBITDA multiples by about 44% on average, implying that unadjusted metrics may understate valuation pressure.

• Rating systemMorgan Stanley relative rating

  Overweight, Equal-weight, Not-Rated, and Underweight indicate risk-adjusted return views relative to the covered universe over the next 12-18 months.

  The disclosure notes that these ratings are not the same as traditional buy, hold, and sell labels, and investors should not make decisions based on ratings alone.

Asset mapping & comparison

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

• META PLATFORMS INC (META.US)

  One of the core internet leaders mentioned in the report

  Strengths

  Up about 9% over the week, outperforming the internet sector; 2026 EPS valuation is about 18x, roughly 24% below its trailing-twelve-month average.

  Weaknesses

  The report does not provide a clear target price or rating change, and whether the valuation discount represents an opportunity still requires fundamental validation.

  Comparison

  Outperformed AMZN and slightly outperformed GOOGL; its discount to historical valuation is larger than GOOGL's.

  Risks

  Changes in macro risk appetite, advertising demand volatility, multiple compression, and the potential conflicts of interest noted in the disclosures.

• GOOGL

  One of the core internet leaders mentioned in the report

  Strengths

  Up about 8% over the week, helping the internet sector outperform the broader market.

  Weaknesses

  2026 EPS valuation is about 24x, roughly +1% versus its trailing-twelve-month average, so the historical discount is not obvious.

  Comparison

  Slightly below META in performance, above AMZN; valuation is closer to a normal level versus historical averages.

  Risks

  Macro valuation pressure, changes in the digital advertising cycle, regulatory risk, and competitive risk.

• AMZN

  One of the core internet leaders mentioned in the report

  Strengths

  Up about 5% over the week, still contributing positive returns to the sector.

  Weaknesses

  2026 EPS valuation is about 25x, with a higher absolute multiple than GOOGL and META.

  Comparison

  Performance lagged META and GOOGL, but valuation is about 20% below its trailing-twelve-month average.

  Risks

  Margin realization, the consumer and cloud business cycles, and macro demand volatility.

• SNAP / RDDT / RBLX / U

  High-beta internet and platform names highlighted in the report

  Strengths

  Weekly gains were about 18%, 12%, 15%, and 17%, respectively, showing stronger upside when risk appetite improves.

  Weaknesses

  The gains may be driven by events or sentiment, making persistence uncertain.

  Comparison

  Short-term gains were generally higher than those of the large internet leaders.

  Risks

  High volatility, earnings quality, valuation pullbacks, and company-specific event risk.

• Travel / Shared Economy / Real Estate Tech

  The industry mix used in the report's SBC adjustment analysis

  Strengths

  Useful as part of the comparable valuation framework for identifying differences between reported EBITDA and cash costs.

  Weaknesses

  If stock-based compensation is treated as a cash cost, EV/EBITDA multiples rise by about 44% on average, reducing valuation attractiveness.

  Comparison

  Compared with unadjusted metrics, valuation pressure is higher after cashing out SBC.

  Risks

  SBC costs, business model cyclicality, and changes in the macro consumer and interest-rate environment.

Key data

• Internet stocks one-week performance+7%The SPX and NDX were about +3% and +4%, respectively.
• META / GOOGL one-week performance+9% / +8%The report says the internet sector's gains were led by META and GOOGL.
• AMZN one-week performance+5%AMZN rose less than META and GOOGL, but still posted a positive return.
• High-beta internet stock performanceSNAP +18%, RDDT +12%, RBLX +15%, U +17%SNAP's advance was linked to interest from activist investors.
• AMZN/GOOGL/META 2026 EPS valuation25x / 24x / 18xVersus trailing-twelve-month averages of -20% / +1% / -24%, respectively.
• Impact of SBC cash adjustmentEV/EBITDA rises by about 44% on averageApplicable to travel, shared economy, and real estate tech companies.

Impact & implications

In the short term, the internet sector is trading with stronger sentiment than the broader market, with both large-cap leaders and high-beta names driving the rebound. However, valuation and earnings quality remain the key constraints: some leaders still trade at a discount to historical averages, while for others, recognizing stock-based compensation as a cash cost materially reduces valuation attractiveness. As a result, this report is better used as a reference for sector trading positioning, valuation conventions, and risk appetite rather than as a direct buy or sell recommendation for individual names.

Risks

• The body of the report is relatively sparse, and several charts lack readable visual text, so some details cannot be fully reconstructed from the input material.
• The internet sector's short-term outperformance may reflect improving risk appetite, but if the macro backdrop weakens, valuation multiples could come under renewed pressure.
• Treating stock-based compensation as a cash cost materially changes EV/EBITDA valuation judgments for some companies.
• Morgan Stanley discloses existing or potential investment banking, market-making, ownership, or other business relationships with many covered companies, so investors should consider possible conflicts of interest.
• The material does not provide explicit ratings or target prices and should not be interpreted as a direct buy or sell recommendation for META or any other company.

What to watch

• Whether the internet sector continues to generate excess returns versus the SPX and NDX.
• Whether the valuation multiples for META, GOOGL, and AMZN continue to re-rate toward or away from historical averages.
• Whether interest from activist investors in SNAP translates into sustainable fundamental or capital-allocation changes.
• How SBC cost treatment affects valuation and earnings-quality judgments for travel, shared economy, and real estate tech companies.
• Whether Morgan Stanley later publishes company-specific reports with explicit ratings, target prices, or earnings revisions.