"Which Stocks From 'The outstanding Seven' Provide the Best Value: Apple or Amazon?"
In a recent financial quarter, both tech giants Apple and Amazon have reported revenue growth below 10%, a departure from their usual impressive figures. However, a closer look at the numbers reveals significant differences between the two companies.
Apple's slow revenue growth can be attributed to a lack of innovative products or features for several years, according to industry analysts. In contrast, Amazon has managed to maintain its momentum, albeit at a slower pace compared to its previous years.
Amazon's profits, on the other hand, are growing substantially faster than Apple's. This can be largely attributed to Amazon's strong-performing advertising and AWS business segments. In Q1, Amazon's online stores and third-party seller services generated $94 billion in sales, accounting for a significant portion of its total revenue.
The high-margin businesses at Amazon are growing at a high-teens rate, indicating rapid profit increase. In fact, despite generating only 19% of total sales in Q1, Amazon's AWS segment accounted for 63% of operating profits. This shows the importance of these segments to Amazon's overall profitability.
Amazon's advertising segment showed the highest growth among its high-margin business segments in the latest quarter, with a revenue increase of 19% to $13.9 billion. The overall e-commerce segment also grew strongly by 13%, but the cloud division AWS grew slower than expected at 17.5% revenue growth.
Meanwhile, Apple's success seems to be largely due to riding on prior success rather than innovative practices. The author believes that Amazon is a far better buy right now due to its earnings growth catalyst that Apple does not have.
Both Apple and Amazon are members of the "Magnificent Seven" group of stocks. In terms of AI features, Apple is behind most smartphone companies, which could present a challenge in the future.
Amazon's operating profits increased 20% year over year in Q1, while Apple's operating profits grew only 6%. It's highly likely that a large chunk of Amazon's profits from the commerce business come from its advertising and AWS segments. Meta Platforms (NASDAQ: META) delivers operating margins of 40% or greater, suggesting that Amazon's advertising operating margins are likely to be high as well.
In conclusion, while both Apple and Amazon have delivered excellent long-term returns for shareholders, their current performance indicates a shift in the tech landscape. Amazon's focus on high-growth segments and its ability to monetise its vast customer base give it an edge over Apple in the current market. However, Apple's brand loyalty and innovative history should not be underestimated in the long run.
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