Better Buy: Amazon vs. Apple
Tech stocks made a solid recovery this year after falling out of favor in 2022. Macroeconomic headwinds have caused declines across the industry as inflation hikes curbed consumer and commercial spending. However, advances in burgeoning markets like artificial intelligence (AI) suggest companies could see significant gains over the long term. As a result, investor excitement has sent shares in Amazon (NASDAQ: AMZN) and Apple (NASDAQ: AAPL) soaring around 51% and 32% since Jan. 1.
These companies have massive dominance in their respective industries, making their stocks attractive options to hold for the next five to 10 years. As leaders in e-commerce and consumer tech products, Amazon and Apple will have much to gain from the market's inevitable recovery.
So let's look at whether you're better off buying Amazon or Apple stock this October.
Amazon
Amazon was among the hardest-hit companies in last year's economic downturn. The retail giant experienced steep profit declines in its e-commerce business, with operating losses totaling close to $11 billion between its North American and international segments in fiscal 2022. However, various restructuring moves and easing inflation have allowed for a strong recovery this year.
In the first quarter of 2023, Amazon reported a return to profitability in its North American segment. Then, in Q2 2023, the same segment posted more than $3 billion in operating income, with continued improvements in its international division. Amazon's retail segments regularly account for over 80% of its revenue, with investors rallying over the solid recovery.
Moreover, Amazon has strengthened its long-term outlook with a growing position in AI. The company's leading role in the cloud market with Amazon Web Services has given it an edge by attracting countless businesses to its growing library of AI tools.
Meanwhile, news broke last month that Amazon will take on Microsoft by investing $4 billion in Anthropic, a rival to ChatGPT developer OpenAI. Amazon is on a promising growth path that could pay off for investors over the long term.
Apple
Apple fared far better than Amazon last year, with consistent growth throughout the economically challenging period. As a result, its stock became a haven for investors, repeatedly outperforming the market and its competitors. However, 2023 hasn't been as easy for the company.
Apple's stock has tumbled about 12% since the start of August, when it posted its Q3 2023 earnings. Macro factors seem to have finally caught up to Apple, reporting its third consecutive dip in revenue as total net sales fell 1% year over year. The tech giant suffered from reduced product sales, with revenue declines in its iPhone, Mac, and iPad segments in Q3 2023. The bright spot of the quarter was digital services, which has become an increasingly lucrative area for Apple.
Services is the company's second-highest earning segment and includes income from the App Store and subscription-based platforms like Apple TV+, Music, iCloud, and more. The digital business reported year-over-year revenue growth of 8% in Q3 2023. Meanwhile, profit margins hit 70% compared to products' 35%. Services appear to be less vulnerable to macroeconomic headwinds, strengthening Apple's long-term prospects, as that means it can lean less on product sales.
Alongside an AI expansion and reports of high demand for its recently launched iPhone 15, Apple is an attractive stock to hold over many years.
Is Amazon or Apple the better buy?
Amazon and Apple have a lot to offer investors over the long term as the market rebounds and they begin profiting from investments in AI. As a result, determining which is the better buy lies in which stock is trading at a better value.
Data by YCharts
The chart above shows Apple's price-to-earnings ratio (P/E) and price-to-free-cash-flow ratio are significantly lower than Amazon's. These metrics are helpful in working out a stock's value, and Apple comes out on top on both fronts. The figures indicate your investment can potentially go further with the iPhone company.
In addition to being a better value, Apple's performance in 2022 makes it a more reliable buy. Its business isn't as vulnerable to economic declines as Amazon's, making it an excellent option to buy now and hold over the long term.
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