By Teresa Rivas

Internet stocks by and large had a great 2024, but some analysts are betting on even more gains in 2025.

Citi analyst Ygal Arounian notes that multiple expansion allowed many internet stocks to outperform last year, but the group doesn't look overly expensive. Coupled with strong fundamentals and the ongoing benefits of generative artificial intelligence, that sets the group up to do well again.

For all 45 companies in his coverage, the average enterprise value to revenue forward year multiple grew 29% in 2024.

"While these multiple expansions are nothing to glance over, and have seen two consecutive years of strong growth, they are still at reasonable ranges and largely still well below peak levels," he writes.

Investors will likely want to see those numbers backed up by top-line strength, considering some internet stocks have lagged behind their typical growth rates in recent years.

But companies where growth is obvious -- along with strong margins -- will be rewarded, Arounian says. Broadly, longer-term trends that bolstered the group last year look likely to stay in place: Digital advertising and e-commerce should keep taking a larger part of the traditional ad and retail pies, respectively, creating a strong operating environment.

Of course AI is a bit of wild card still. The promise of product enhancement and cost savings are beginning to play out, but unevenly across the space.

"In 2025 we expect to get more answers around what business models are doing the best to implement meaningful product improvements and innovations that can lead to real monetization and incremental revenue growth," he writes. Web-building companies look like an obvious beneficiary, as does e-commerce, given AI's ability to drive product discovery.

Arounian's favorite stocks include Wix.com, GoDaddy, and VeriSign with price targets of $270, $251, and $238, respectively. Wix is his top pick, given its reasonable valuation, product innovation, and the launch of its first directly monetized AI products in 2025.

That said, he's more cautious on dating apps and real estate tech, given recent user declines (as other analysts have also highlighted) and a tough housing market.

Arounian's optimism about internet stocks comes as some of the biggest tech stocks had a difficult start to the new year. Apple just missed being the first company to reach a $4 trillion market capitalization, and some analysts are cautious about the Magnificent Seven's ability to keep fueling market growth.

Yet other bulls argue that tech's run isn't over yet, given what's likely to be a less onerous regulatory environment and the continuing benefits of AI innovation.

Write to Teresa Rivas at teresa.rivas@barrons.com

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January 03, 2025 12:32 ET (17:32 GMT)

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