Dominant tech businesses generate all the buzz from the investment community. In the past, they've been able to produce tremendous returns for shareholders.
Two examples are Amazon (AMZN 0.01%) and Apple (AAPL 0.20%), successful enterprises that touch the lives of billions of people daily. Despite their massive sizes, they both deserve to be on your investment radar.
Which of these "Magnificent Seven" stocks is the best one to buy right now?
Amazon: Multiple growth levers
In the last 12 months, Amazon reported net sales of $620 billion. This is a gargantuan sum that would make you believe the top line has no upside going forward. But that's a flawed assumption, as Amazon benefits from numerous secular tailwinds.
For starters, the company is the clear leader in the e-commerce market. According to Statista, nearly 40% of all online shopping in the U.S. goes through Amazon.com, well ahead of second-place Walmart. E-commerce spending accounts for just 16% of total retail activity in the U.S., so there is a long growth runway that Amazon can capture.
And besides streaming entertainment and digital advertising, Amazon Web Services (AWS) is making the company a cloud computing leader, commanding 31% global market share in the industry. Revenue growth has accelerated in recent quarters, boosted by heightened customer interest in artificial intelligence (AI).
Recently, Amazon's management team, led by CEO Andy Jassy, has been focused on cost cuts and operational efficiency. A business as large as this one unsurprisingly developed some bloat that needed addressing. This is music to investors' ears.
That's because Amazon's bottom line is expanding at a rapid clip. Operating income soared 55% year over year to $17.4 billion in Q3. And executives believe that figure will increase 36% (at the midpoint) in the just-ended fourth quarter. Wall Street analysts expect revenue to rise 11% in 2025, but they forecast operating income to just 21%. I believe a continuation of this trend is in store for the foreseeable future.
Apple: Incredible brand strength
Apple is the world's most valuable company, with a market cap of just under $3.7 trillion. Getting to this point can be attributed to its strong brand presence, one that consumers associate with a premium status, high-quality offerings, and exceptional design and innovation. This has helped the business benefit from pricing power over the years.
Apple's hardware devices, most notably the iPhone, get a lot of attention. That's warranted, as this single product represented 51% of company revenue in fiscal 2024 (ended Sept. 28). And it's precisely what has made Apple a global icon. But revenue growth here isn't exciting anymore.
That's not the case for the company's various software and services offerings, like Apple TV+, iCloud, Apple Pay, and advertising, which are becoming more important for the overall business. This division has grown revenue at a compound annual rate of 12% in the past three years, faster than hardware. And it boasts a fantastic gross margin of 74%.
The combination of hardware and software creates Apple's powerful ecosystem. This locks users in and discourages them from leaving to competitors. In other words, there are switching costs.
Another compelling trait Apple possesses is its pristine financial condition. The company is incredibly profitable, raking in $93.7 billion in net income in fiscal 2024, good for a net profit margin of 24%. That has helped support a balance sheet position with $50 billion in net cash, reducing financial risk for investors.
Price matters
There's no question these two companies are top-notch enterprises. But investors can't ignore valuation, as the price you pay matters.
As of this writing, Amazon trades at a forward price-to-earnings ratio of 36, while Apple's multiple is at 33. Amazon's quickly expanding bottom line, especially when compared to Apple's more muted growth, helps justify paying what is a slightly premium valuation.
Looking out over the next five years, I believe Amazon has a chance to produce a higher return than Apple, making it a better stock to buy.
