Tech companies continue their dominance in the S&P 500 (^GSPC) as investors patiently await upcoming earnings to take stock of the broader market moving forward. Goldman Sachs Senior Equity Research Analyst Eric Sheridan gave out his top tech picks to watch, highlighting Amazon (AMZN) as a bright spot for investors to keep an eye on.

Sheridan joins Yahoo Finance to give insight into Amazon's current business as to why it's one of his top picks.

"We believe there will be an improvement in their AWS cloud computing division," Sheridan explains. "When you think about growth going forward not only just in Q4 but all of the way through 2024, the enterprise computing environment had quite a cloud optimization cycle from '22 into '23 so you're lapping that optimization cycle and you're seeing the beginning of AI workloads drive potential reacceleration of revenue growth, as well."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

BRAD SMITH: We're continuing to monitor the tech stock rally. And it's roaring on spurred late last week by AI euphoria. Investors now await results from some of the sector's biggest names. So where are the best buying opportunities in tech?

Today, we've got Eric Sheridan, Goldman Sachs senior equity research analyst covering the US internet sector for more on this. Hey, Eric, good to speak with you this morning. I want to talk through some of your top picks and got to begin at your tippity top pick, which is Amazon. Why?

ERIC SHERIDAN: Two things really. Number one, we believe there'll be an improvement in their AWS cloud computing division. When you think about growth going forward, not only just in Q4, but all the way through 2024, the enterprise computing environment had quite a cloud optimization cycle from '22 and to '23. So you're lapping that optimization cycle and you're seeing the beginning of AI workloads drive potential re-acceleration of revenue growth as well.

The second is profit narrative. We believe Amazon CEO Andy Jassy is singularly focused on returning the company back to pre-pandemic operating margin levels in its North America business. Those two factors alone would be a driver towards our price target of $200.

SEANA SMITH: Eric, I'm curious what you make-- and you can put Amazon in this camp-- but certainly, there's been a lot made in terms of the narrative out there about the balloon that we've seen in valuations that that could really be a headwind for some of these stocks like Amazon this year. Are some of those fears, in your perspective and the companies'-- I know you cover more than a handful of companies, but are some of those fears overblown?

ERIC SHERIDAN: Well, I think it's interesting when you look at the very largest names in the sector, there's actually been more multiple compression on the back of earnings revisions of the last 12 or 18 months. So in a prior segment, you guys were talking about the labor market and continued efficiency gains and productivity gains from rightsizing investments and workforces in tech. That's been an enormous driver in the last 12 or 18 months. So it's not just been multiple, it's mostly been earnings revisions along with some degree of multiple. If you go out to 2024 and 2025 and look at the potential for double-digit revenue growth, rising margins, and capital being returned from some of the largest names in the sector, they actually look pretty compelling on a multiple-to-growth basis.