ETFs Face-Off as Amazon Races to Surpass Microsoft

The technology sector remained the hot spot for investors given the dual tailwinds of a rising rate scenario and the new tax repatriation policy. After being hit by the massive broad market selloff last week, the sector is back in form. Once again, FAAMG stocks are on a tear and leading the market rebound with Amazon AMZN and Microsoft MSFT battling for the spot of the third-most valuable company (see: all the Technology ETFs here ).

This is especially true, as the e-commerce giant eclipsed the world's largest software maker for the first time in terms of market value on Feb 13. At the close of the day, Amazon was worth $702.5 billion compared with Microsoft's market value of $699.2 billion. However, on Feb 14, Microsoft again regained its third position as the largest public traded company with a market cap of $713.5 billion compared with Amazon's $707.6 billion. Apple AAPL and Alphabet GOOGL are the two-most valuable companies in the world.

Amazon surged 12.9% over the past one month fueled by its blockbuster Q4 results. The company came up huge earnings beat of 16.76% powered by big sales associated with its Alexa voice assistant and strong profits at Amazon Web Services. In fact, Amazon's quarterly profit soared past $1 billion for the first time in its more than 20-year history (read: Amazon ETFs to Buy on Q4 Blockbuster Results ).

The online giant has added 0.7% so far this month, easily dodging the impact of a broad market selloff. Beyond its core e-commerce business, Amazon has been expanding rapidly into cloud computing, artificial intelligence, consumer devices, entertainment, package delivery, brick-and-mortar and many other areas.

Meanwhile, Microsoft has climbed just 2.8% in a month. Its stellar quarterly results have failed to save Microsoft from falling into a correction territory (a decline of 10%) from the latest peak in the tumultuous market. The stock is down 2.4% so far this month. Since Satya Nadella has taken over, the fortunes of this software leader have strongly turned around and making it a true player in cloud computing business, which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform.

Amazon Versus Microsoft

Though Amazon has a top Growth Score of A meaning that it is primed for strong growth, Microsoft looks cheaper at the current levels as it is currently trading at a P/E ratio of 24.94 versus 170.86 for Amazon. Additionally, MSFT carries a Zacks Rank #2 (Buy) and falls under a top-ranked Zacks industry ( top 48% ). About 78% of the analysts have a Strong Buy or Buy rating on Microsoft with an average target price of $101, as per the analysts compiled by Zacks. While the company's earnings are expected to grow 10.01% this year, lower than the industry average of 17.65%, revenues will likely increase 12.89%, much higher than the industry growth of 9.02% (read: Top-Ranked ETFs to Ride on Microsoft's Cloud Growth Story ).

On the other hand, Amazon has a Zacks Rank #3 (Hold) and falls under a bottom-ranked Zacks industry ( bottom 49% ). Earnings and revenues are estimated to grow 86.65% and 31.68%, respectively, much higher than the respective average industry growth of 27.20% and 19.93%. According to the analysts compiled by Zacks, AMZN has an average target price of $1573.63, with about 89% of the analysts having a Strong Buy or a Buy rating.

ETFs to Bet On

Based on the above discussion, Microsoft seems like a more solid choice given its Zacks Rank #2, solid industry rank and cheap valuation. As such, investors could bet on MSFT in a basket form with iShares U.S. Technology ETF IYW , Select Sector SPDR Technology ETF XLK , and MSCI Information Technology Index ETF FTEC . Microsoft accounts for 13.2% share in IYW, 11.5% share in XLK and 10.1% share in FTEC. These funds have shed about 0.5% each in a month. IYW has a Zacks Rank #1 (Strong Buy) while XLK and FTEC have a Zacks Rank #2 each (read: Can Tech ETFs Regain Investors' Love After Selloff Snub? ).

Investors seeking to bet on Amazon could consider VanEck Vectors Retail ETF RTH , Consumer Discretionary Select Sector SPDR Fund XLY and iShares U.S. Consumer Services ETF IYC . AMZN occupies the top position in these ETFs with 21.9% share in RTH, 19.7% in XLY and 16.5% in IYC. XLY gained 0.6% in a month while RTH and IYC lost 0.5% each. IYC has a Zacks Rank #2 and the other two have a Zacks Rank #3 (Hold) (read: Discretionary ETFs to Splurge on This Valentine's Day ).

Investors seeking to invest in both companies at the same time could look at PowerShares QQQ QQQ , iShares North American Tech ETF IGM and New Tech and Media ETF FNG . QQQ has the largest 18.3% share in both MSFT and AMZN, followed by 17.1% in IGM and 14.7% in FNG. QQQ shed 0.7% in a month while the other two gained at least 0.8% each. FDN and IGM have a Zacks Rank #2.

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SPDR-TECH SELS (XLK): ETF Research Reports

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VANECK-RETAIL (RTH): ETF Research Reports

SPDR-CONS DISCR (XLY): ETF Research Reports

FID-INFOTEC (FTEC): ETF Research Reports

ISHARS-NA TECH (IGM): ETF Research Reports

ISHARS-US TECH (IYW): ETF Research Reports

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ADVS-NW TEC MDA (FNG): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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