Top Investment Option Currently: Amazon versus Apple Stocks Analysis
Financiers looking to incorporate influential tech corporations into their investment portfolios might not have an extensive catalog to pick from. Nonetheless, despite the limited choices, the decisions are quite evident.
Amazon (AMZN 0.73%) and Apple (AAPL 1.88%) undeniably rule their respective tech spheres. And it's more than likely that a large portion of those reading this utilize at least one of their products or services on a daily basis, granting you an exclusive consumer viewpoint on these companies.
But which of these two tech titans is the superior stock to invest in at the moment?
The case for Amazon
Amazon finds itself in an advantageous position to drive sustained sales growth. This is mostly due to its alignment with several long-term trends. The business is already a powerful force in the e-commerce domain, with almost 40% of all online spending in the U.S. transacted via Amazon.com. Furthermore, Amazon is also a leader in cloud computing, thanks to its Amazon Web Services (AWS) division, which has been the primary growth and profit driver for the company in recent times. The company also generates substantial revenue from digital advertising, which amounted to $57.3 billion in annual run rate revenue in Q3 (ended Sept. 30).
Investors have been lenient towards Amazon's lack of profitability, chalking it up to the company's focus on investing in growth initiatives. However, CEO Andy Jassy has now moved towards creating a more financially sustainable organization, prioritizing cost reductions and operational efficiencies.
During the latest quarter, Amazon reported operating income of $17.4 billion, which represented a 55.3% increase compared to the previous year. This was the company's highest-ever quarterly operating income, according to CFO Brian Olsavsky. In the current quarter, operating income is expected to surge 36.4% (at the midpoint) year over year. Considering the upward trend in earnings performance over the past few quarters, investors might find encouragement in the potential for earnings to continue ascending.
Amazon shares have soared 148% since the beginning of 2023, and they have skyrocketed 1,290% over the past decade. However, the stock still appears attractive from a valuation perspective, trading at a price-to-free-cash-flow (P/FCF) ratio of 31. This is nearly the cheapest it has been since November 2014.
The case for Apple
Apple manufactures some of the world's most sought-after tech products, such as the iPhone, MacBook, and Watch. The company has long been a leader in the consumer technology sector. Its ability to create aesthetically pleasing hardware and software has resulted in an extensive competitive advantage.
According to Interbrand, Apple's brand is estimated to be worth almost $500 billion, making it the most valuable brand on Earth. This strong brand value has historically enabled the company to exert pricing power, as consumers are strongly drawn to its offerings.
This competitive brand strength is further bolstered by Apple's ecosystem, which represents the seamless integration of its products and services that consumers seem to depend on. Warren Buffett, with his Berkshire Hathaway still holding a substantial stake despite selling over half of its Apple shares, argues that many iPhone users are so devoted to their devices that they would refuse even a $10,000 offer to never use an iPhone again.
Apple might not have any peers that are as financially robust as itself. As of Sept. 30, it had a net cash position of $50 billion. Combined with an extraordinary level of profitability, this means the company can always operate from a position of power, funding new initiatives regardless of broader market conditions.
The superior investment choice today is...
Apple shares have risen 733% over the past decade. However, unlike Amazon, the valuation doesn't seem enticing. The stock trades at a P/FCF ratio of 32, which is just short of the most expensive level over the past decade. Given this historically high valuation, I believe Amazon is the superior investment option at present.
Based on the analysis provided, here are two sentences that incorporate the words 'money', 'investing', and 'finance' in the given context:
- Given Apple's historically high valuation, with a P/FCF ratio of 32, some investors might be cautious about investing large sums of money, as they may be seeking more financially attractive options.
- Despite Amazon's significant gains over the past decade, with shares soaring 1,290%, there are still opportunities for investors looking to allocate money into the stock, especially considering its lower P/FCF ratio of 31 compared to Apple.
