Apple vs. Amazon: Which Has the Most Upside?
It used to be Apple (NASDAQ:AAPL) vs. Microsoft (NASDAQ:MSFT), then it was Apple vs. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Now it’s Apple vs. Amazon (NASDAQ:AMZN). Will the Cupertino-based tech giant continue to crush its foes in the comparison or will a new name reign supreme?
Both companies recently reported earnings and both rallied as a result. With Apple’s bump in the stock price Wednesday, it’s only about $13 billion away from hitting the coveted $1 trillion market cap milestone. At the beginning of the year, Amazon really wasn’t in that discussion. At that point, Amazon’s market cap was still below $600 billion, while Apple began the year over $850 billion.
The Apple vs. Amazon race is taking on a new dynamic with the race for $1 trillion. With Amazon near $900 billion just a few days ago and Apple near $930 billion before earnings, the race was pretty tight, although most of the drama is fading after Apple’s recent rally.
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When its comes to the market cap battle with regards to Apple vs. Amazon, the former looks likely to win. But does that make it the best investment going forward?
Apple vs. Amazon Fundamentals
Let’s be honest, from a financial point of view, no company can topple Apple. The company’s recent quarterly results showed just that. The company churned out revenue of $53.3 billion, up more than 17% year-over-year (YoY) and ahead of analysts’ expectations. In fact, Apple beat on earnings-per-share, revenue, average iPhone selling prices and Services revenue expectations. Guidance topped estimates too.
Services is the new crown jewel for Apple, growing 31% YoY to $9.55 billion. Over the trailing 12 months, Services has almost $36 billion in sales. That’s about in-line with Goldman Sachs (NYSE:GS) and just behind Morgan Stanley (NYSE:MS). It easily sports a growth rate north of 25% and should soon eclipse $10-billion-per-quarter. CEO Tim Cook says he believes Services will hit $50 billion annually by 2020. The best part is that this segment has incredibly high margins.
Apple now has more than $240 billion in cash and a net cash position of $129 billion. Given its high cash flow, this will only fuel the company’s massive buyback. With a shrinking share float and growing earnings, it’s hard not to like Apple, even near $1 trillion.
Like Services, Amazon Web Services (AWS) has become a crown jewel for AMZN. The segment helped pave the way to a massive earnings beat for Amazon last week, even if the company did slightly miss on revenue estimates. AWS churned out $6.1 billion in revenue, above estimates of $5.9 billion and up almost 50% YoY. Total sales grew a whopping 40%.
AWS is smaller than Apple Services but growing faster. While Amazon is nowhere near as strong as Apple from a profit perspective, many believe it still has a long runway of growth.
Apple vs. Amazon Charts
How do we choose between Apple (above) and Amazon (below) when both charts look so good?
Technically speaking, Amazon has been stronger, given its insane rally. Keep in mind we’re talking about almost $2,000-per-share for a stock that didn’t break above $1,000 until late October. Apple’s move from $155 to $200 has been no small feat either, but not nearly as spectacular.
So what now?
I honestly don’t have a problem with investors owning either one. If I had to buy just one right here, it would probably be Apple. Growth is strong, its capital return is immense and its valuation is more reasonable. That said, Amazon has more growth left in the tank as the shift to e-commerce is far from being in the late-stage. The cloud isn’t slowing down either.
For those reasons, I think it’s really reasonable to consider owning both, at least in some capacity, and particularly on a pullback. A bit anticlimactic for an Apple vs. Amazon debate? Perhaps so. But the truth is simple: Both companies are stellar and owning them has resulted in massive windfalls for long-term investors.
As for the charts, Apple may be nearing some resistance. $1 trillion could mark a short-term top in the name, as it’s just a few dollars per share away from the mark. However, we have seen Apple push through its upper range before and then find it as support (as shown on the chart). So it’s hard to be too bearish, especially going into the second half of 2018.
For Amazon, sometimes a picture is worth 1,000 words. Buy the dip.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, he was long AAPL.
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