Amazon (AMZN -0.16%) and Apple (AAPL 2.18%) have become among the world’s most recognized companies. They’ve also become very valuable, with the former’s market cap exceeding $2.4 trillion and the latter’s about $3.4 trillion.
Both have been very successful and rewarding for shareholders over the years, but investors should be concerned about the future. Which one offers the better investment potential?
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Amazon
Amazon has become known as an online seller of pretty much everything. It typically offers competitive prices and convenient delivery. However, the company’s business has become much more.
Aside from its online retail operations, it also operates physical stores (e.g., Whole Foods), its Amazon Prime subscription service, advertising services, and Amazon Web Services (AWS), among other businesses.
The last one, AWS, has been growing quickly. The cloud-computing service offers organizations the ability to house data, make computations, and use tools like generative artificial intelligence.
AWS’ fourth-quarter sales grew 19% to $28.8 billion. It remains highly profitable, too. Operating income increased more than 48% in the period, reaching $10.6 billion. While the unit accounted for 15% of the quarter’s sales, it represented 50% of the operating profit.
The fast growth doesn’t seem set to slow down anytime soon, given organizations’ desire for data. With generative artificial intelligence getting adapted so quickly, sales growth could accelerate in the coming years.
AWS appears in a prime position to benefit. It takes a lot of resources to run the data centers, minimizing competitive threats. It has the biggest market share, much higher than Microsoft‘s (NASDAQ: MSFT) Azure and Alphabet‘s (NASDAQ: GOOG) (NASDAQ: GOOGL) Google Cloud.
Apple
Apple has become known for products like its namesake watch, Mac, iPad, and iPhone. However, it’s the last item that accounts for the largest portion of the company’s sales. It represented 56% of fiscal first-quarter sales for the period that ended on Dec. 28, 2024.
Unfortunately, iPhone sales have been sluggish. The product’s first-quarter top line dropped to $69.1 billion, a 0.8% fall from a year ago, despite releasing a new version.
China remained a weak spot, with the region’s quarterly sales dropping 11%. Management blamed the decline on weaker iPhone sales. The iPhone faces lower-priced competition, and a potential tariff war would likely further depress the device’s sales.
Apple hopes to boost overall iPhone sales by launching new features, particularly artificial intelligence. Whether this can stem the sales decline, particularly from lower-cost competitors, remains to be seen.
The decision
Both stocks have performed well recently. Amazon’s shares gained 34.9% over the last year (ended on Feb. 7), outpacing the S&P 500‘s 20.6%. During this time, Apple’s stock appreciated 20.9%.
The market expects continued outperformance based on their valuations. Amazon’s stock has a price-to-earnings (P/E) ratio of 41, and Apple has a P/E of 36. That’s higher than the S&P 500’s P/E multiple of 30.
While it’s hard to call Amazon a bargain, with its strong growth prospects driven by demand for its AWS business, I’d choose the stock over Apple. Apple continues to grow profits, including a 6.1% year-over-year increase in the most recent quarter’s operating income. However, competitive pressures and potential geopolitical headwinds could pressure its core iPhone sales.
For those concerned about Amazon’s valuation, you can engage in dollar-cost averaging, in which you invest the same amount at regular intervals, smoothing out the purchase price over time.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
