A broad sell-off that analysts attribute partly to worries about artificial intelligence displacing existing business models has driven internet company valuations down to multi-year lows, according to Jefferies. The brokerage's team says the market's pessimism may have overshot, and that recent developments point toward a scenario where major internet platforms ultimately benefit from AI rather than being displaced by it.
Jefferies' view
Analyst John Colantuoni told clients that, in his view, "recent developments suggest Internet is evolving into an AI beneficiary, turning the recent sell-off into a buying opportunity." Jefferies notes that internet stocks have declined about 30% year-to-date and now trade at what the firm calls a "record 30% discount to the S&P500." The firm also highlights that current multiples sit roughly "70% below their '22 peaks."
Platform dynamics cited by Jefferies
Jefferies points to a number of shifts it believes reduce the risk of larger platforms being displaced. The firm says OpenAI is stepping back from consumer-facing product ambitions and from pursuing direct checkout capabilities, while Google has signaled it will remain a referral source rather than supplant partners. These developments, Jefferies argues, leave big internet platforms positioned to capture benefits from AI integration.
Stock-level upgrades
Against that backdrop, Jefferies raised its recommendations on two companies. The firm upgraded Expedia Group to Buy, highlighting what it describes as an "underappreciated EPS algorithm." Jefferies expects more than three years of 20% plus earnings-per-share growth, underpinned by high-single-digit-plus lodging bookings growth, margin expansion and share repurchases. Despite those expectations, the firm notes Expedia's forward price-to-earnings ratio remains about "~40% below Internet."
Instacart was also upgraded to Buy. Jefferies cited "underappreciated growth engines" and projects at least mid-teens EPS growth for more than five years. The firm expects that growth to be driven by accelerating gross transaction value, expanded partnerships, stronger enterprise demand and international expansion. Jefferies adds that Instacart's valuation, about 25% below the Internet sector, "sits near an all-time low" even as growth re-accelerates.
Investment implication
Jefferies argues these valuation dislocations create "attractive entry points" for investors, framing AI as a potential tailwind to the sector rather than a persistent threat. The firm’s analysis centers on the view that recent strategic moves by AI providers reduce direct competitive pressure on major internet platforms and leave room for those platforms to capture upside as AI adoption progresses.
Key sections:
- Market context: Internet stocks down roughly 30% YTD and trading at a record 30% discount to the S&P500, with multiples 70% below 2022 peaks.
- Company upgrades: Expedia Group and Instacart moved to Buy based on expected multi-year EPS growth and underappreciated growth drivers.
- Sector implication: Jefferies views AI as a potential net positive for large internet platforms given recent strategic shifts by AI providers.