We're delighted to have Mark Mahaney on the show today. Mark is senior managing director and head of internet research at Evercore ISI. He's been Institutional Investor's number one internet analyst five times. He frequently appears on CNBC, Bloomberg TV, and Fox Business and is often quoted in the financial press. Earlier in his career, he was a managing director at the Royal Bank of Canada and CIBC. Mark holds an MBA from the Wharton School, an MA in economics from Johns Hopkins, and a BA in history and political science from Amherst College. Mark, it's been a whole year since we've had you on the show. Our viewers have been waiting for your return, and we really wanted to hear you discuss the outlook for 2026.
Well, it's been a very eventful year, and I'm happy to be back here doing it again.
Well, it seems like it's already been a very eventful month, as you know, as 2026 goes. I wanted to ask you, in a recent CNBC interview you mentioned that the AI rally is going to continue through this year and the next, and I guess in the latter quarter or so of the year there was some concern about this, you know, virtuous turn vicious cycle where the names like Nvidia are investing in their customers so their customers can afford to buy their chips. So I think maybe there's some questions about that AI trade given that, and your thoughts on, you know, how AI will do. Is this a good time to, you know, to add exposure to the sector and names like the hyperscalers or like the infrastructure firms?
Well, I always like to be careful with the broad-based statements about investing in stocks. I try to be relatively selective. But some of the stocks that I most like here, names like Amazon, Meta, I still like Google even despite the material run it's had, but it's further down my buy list. All of them are levered in some way or another, or very strongly, to the AI trade. And I think one of the most interesting data points we've gotten in the last year just came from Meta's earnings two nights ago when they are clearly leaning aggressively into investments. Capex doubled in '25, almost doubling again in '26, up to 130, 135 billion. But you're seeing the returns, like what we've all been—we know that the spend is there. We've been waiting to see whether we would see an RO AI, you know, ROI, RO AI, and the answer is yes. At one of the biggest deployments of AI out there, this is across all of Meta's properties: Facebook, Instagram, WhatsApp. This company is able to use AI to both increase engagement, the amount of time that each of us spends with its properties—Facebook, Instagram, and WhatsApp, also Threads—but also it's able to increase the effectiveness of ad campaigns on those properties, on those brands, and it's showing up in the numbers. This company is guiding to something like 30% year-over-year revenue growth in the March quarter. Let me put some context around that. The last time they grew that fast was four years ago when the company was half of its size. And it was a sizable company back then, and it's even more sizable now. So you rarely see something like that. And I think it just speaks volumes for how powerful the impact of AI can be on business models when companies execute really well. So I just look at us as having received a really powerful RO AI data point. Yes, I think AI is an investable thesis. I think it actually improves efficiencies. It doesn't just bring down costs. It improves efficiencies. It improves products. It improves processes. And it's leading to positive revenue results for the companies that are most successful with it. And if you can find those companies, especially when they're dislocated, then you want to be leaning into them.
Right, right. You bring up an interesting point. You know, Meta had earnings and up 10%. The same day, Microsoft absolutely gets spanked. They're spending a lot of money, but there seems to be concerns on whether or not they're growing fast enough to justify that. Is that, you know, that dichotomy justified? That, you know, Meta's up 10% on the day, Microsoft down 10% on the day?
Well, I don't formally cover Microsoft. I just think these are very different setups, and Microsoft also is two different houses. There's the clear AI beneficiary, which is Azure, their cloud services business, but then the rest of Microsoft is software, as you know, and the entire software sector has been under enormous pressure from AI under the belief that AI is going to cause both pricing and units pressure. Pricing: if you were charging a premium for your productivity software in an age of AI, your ability to maintain that premium is going to be thoroughly challenged. You may succeed, but it's going to be challenged. Units: if AI is really bringing the productivity improvements that we're all talking about, Zuckerberg on the call said that they were seeing 30% improvement in their productivity per engineer. That means you probably need to hire fewer engineers. That means those companies that are selling software on a per-seat license, there may be fewer seats to sell to. So I've oversimplified the software trade, the trade down, but to me, AI is coming in, it's pressuring ARPU and it's pressuring unit growth, the two basic drivers of software models. And hence the sell-off, and Microsoft is kind of in the middle of both of these worlds. It's both. I mean, that's the simple—amongst tech companies, the great divide right now is whether you're an AI winner and an AI loser. Doesn't mean the market's right. The market's got a few things, you know, it's going to run one way or run another way. The market nine months ago was certain that Google at 15 times earnings was an AI loser. Today, Google is at 30 times earnings and the market is certain that it's an AI winner. And the truth is, it's probably somewhere in between.
It's really amazing. They came—you're absolutely right. They came, you know, they rose like a phoenix on the ashes on Gemini 3, I think it was. And people thought that was really good, and all of a sudden they were horribly in disfavor, and everybody turned their heads around. And yes, what are we going to think when we see Gemini 4?
That, you know, like if we think about one of the most interesting—I think the single most interesting stock move of the last 12 months has been what happened to Google in terms of, you know, the stock more than doubled off of its lows and the multiple did double. It went from 15 to 30 times earnings, it did. And, you know, why did it do that, and what are the implications as a stock picker? And the why is that the narrative changed from it being, you know, a company—well, there was a lot of other things to the narrative too. They were going through the DOJ case, the monopoly trial, but there was the broad consensus that it was going to be disrupted by AI, especially by ChatGPT. And now that's changed dramatically, largely through some product innovation. And so I step back and I think about it as, you know, stocks can change when the key narrative changes. I am looking, as stock picking in 2026, I'm looking for stocks where I think the market's wrong on the AI narrative—that the market thinks is going to be disrupted, negatively impacted by AI, and I think it's going to be positively benefited by AI. So that leads me to my top pick in the internet space, which is Amazon.
Right, right. And, you know, Amazon—I think you had recently said that Amazon was your top tech pick for 2026, and you like their entry point and you felt they've underperformed. Why is Amazon your top pick?
Okay, so yeah, let me—here's the setup. I think the market believes that AWS—the market is uncertain whether AWS is disrupted by AI or benefits from AI. I think it's more the latter. I think they're just seeing more demand. I think you're at an inflection point with AWS growth. Last quarter, the revenue growth surprised people, went from 17% year-over-year to 20% year-over-year. I think you're in a cycle now where you're going to see accelerating AWS growth for several quarters. If I'm right about that, that's a high-margin business for Amazon. It's very beneficial to its overall margins. On top of that, I think the retail business is likely to accelerate this year too. In the US, there's the big beautiful bill tax rebate checks that a lot of US citizens are going to get. That's a small factor. I think there's also an AI factor. I think the retail business, Amazon's core retail business, is getting better because of AI. Not only on the cost side—and I'm thinking about robotization kind of across their distribution centers, across their fulfillment centers—but I mean in terms of this new agent called Rufus, and I think it'll integrate this into the core shopping experience, but that is just much better. It creates a personalized, iterative, interactive shopping experience to help you find that perfect gift for your wife at Valentine's Day, or those perfect gifts for your children at their birthdays, or at Christmas. You know, I've been experimenting with this. We've done a couple of reports on it. So I just think that the shopping experience is improving. I think you're starting to see the rise of agentic commerce, and I think agentic commerce is coming, and it's coming to Amazon and other places too, but I think you're going to see Amazon is one of the biggest beneficiaries of that. And then the final element—so I think Amazon has got accelerating cloud growth in '26, accelerating retail growth in '26. Also, they have a new, much bigger push into groceries, which is a key kind of missing area I think for Amazon, or they've underpunched in that area for a long time. And then the third part of the Amazon outlook for this year is advertising revenue. And advertising revenue, I think, is also going to accelerate. It usually ties in with retail anyway, but there's a lot more inventory that the company has as they do a lot more live sports programming. So I just like the setup. If you tell me there's a company that's going to do accelerating revenue growth and expanding operating margins and has been a dislocated stock, my response would be that sounds like a stock that's going to do really well. And I think that's what the setup on Amazon is exactly that. So that's why it's our number one pick.
So definitely don't sleep on Amazon. That's a very good point about using Rufus, because you know how good is Meta at driving eyeballs to—like, oh, you like watches, we're going to show you watches. They show me watches all the time. I don't want to see watches all the time, but they're good at that. And Google the same way, and if Amazon can jump on it, that makes a lot of sense. Along with Amazon, you've picked Expedia and Zillow as a couple of your top tech picks. They're kind of very different businesses. Going to briefly expand on why you like Expedia and Zillow so much.
Yeah. So, and these are—and I'm being very tactical with these calls, but that's what my job is. So, Zillow, for one, you do have very reasonable valuation. It trades at 18 times GAAP earnings. It's got a good financial model, generates a lot of free cash flow, they buy back stock, they pay a dividend. So, you know, online travel is a good sector to be in. The dirty secret behind the wonderful economics of online travel is it's a thoroughly fragmented supplier base. And basic economics: the more supply there is, the better for the network or the intermediary or the retailer in the middle. But what's also interesting to me about Expedia is that we've had a management, I think, upgrade. We've had a new CEO in place for almost two years now, and she actually ran one of their business units—I think the most successful of their business units—for eight years prior to that. So I think you've got a really, really good operator, a CEO now. You had a relatively new CFO in place too. He came from eBay. And you've got this particular advantage that the company has this year in 2026 as a US travel company. And I'll just—here's the setup. Last year, we had softness in US travel sales in the middle of the year given all of the kind of economic uncertainty in the wake of the Liberation Day tariff announcements. And then you also had a little bit of a boycott of Europeans and Canadians, two of the biggest travelers into the US. There's a little bit of a boycott there. Third is with the government shutdown for a good period of time at the end of last year, I think that kind of negatively impacted travel demand. And then I go into this year, and I think some of these tax rebate checks that they're going to be sent out to US taxpayers—although I worry that we're going to get back into the stimulus game and that's going to lead to inflation, I do worry about that. But I also understand near-term that people get a $1,500 check, they're probably more likely to travel. And finally, the big global event that we're all waiting for this year is the World Cup. And the World Cup is in North America. And the World Cup is the biggest World Cup ever in terms of the total number of teams that are participating, the total number of games, the total number of days of the World Cup tournament. And it's primarily in the US, but there are also some games in Canada and in Mexico. And so I think you're going to see a surge there—a surge in demand. I mean, you're seeing record high prices for these tickets. And I think that's going to help the travel company that's most levered to the US market, and that's Expedia. So that's my pitch on Expedia: good business, very reasonable valuation, upgraded management team, and then a very specific positive play off of what I think are going to be very strong US travel trends this year.
And then Zillow is a little bit—yeah, briefly, if you could talk about why you like Zillow.
I'll be very quick with Zillow. This is a smidcap play. So any of these smidcap plays, less than 20 billion, are always more speculative almost by nature. But I think if you get any sort of signs of a housing recovery, this is one way to play it. There's a good product cycle here. They've got some new features of something called showcase listings that I particularly like. This company now has finally reached, after 10 years, GAAP profitability, and I think it's sustainable. By the way, with now being GAAP profitable, they could be considered for inclusion in the S&P 500. There's a series of legal issues hanging over the company. I think as those get addressed, most scenarios that I can work through have those serving as relief catalysts. I think the stock trades up on the resolution of some of these legal issues. And then just in terms of the numbers, this company is going to be exiting '25 with 19-20% top-line growth. Comps get easier in the first half of '26. And if we get any signs that mortgage rates come below 6% and you get an unlock in the US housing market, I think Zillow could be a great beneficiary of that, stock-wise, fundamentals-wise. So it's our top smidcap pick.
