Many companies have watched their share prices fall significantly as rises in inflation and interest rates have increasingly stunted consumer spending. As a result, the stock market has become a buyer’s paradise for investors willing to hold for the long term.
Amazon (AMZN -0.61%) and Apple (AAPL 0.42%) have both seen their stock prices plummet since January. These are some of the most valuable companies in the world, so prospective investors might be wondering which is the better buy. Let’s take a look.
Amazon: An e-commerce titan
Amazon has come a long way since it started as an online book retailer in 1994. The company has grown into an e-commerce behemoth that has become the first place most of the world turns to for online shopping, and its Prime subscription service generates roughly $25.21 billion a year.
However, Amazon’s stock has plummeted 45% year to date because the consumer-reliant part of its business has been hit especially hard by macroeconomic declines. In its third quarter of 2022, for which it reported earnings on Oct. 27, the company earned $127.1 billion in revenue, which was just shy of analysts’ expectations of $127.46 billion. The miss was primarily fueled by reduced earnings in Amazon’s International segment, which decreased by 4.9% year over year from $29.1 billion in Q3 2021 to $27.7 billion in Q3 2022.
Moreover, despite the company’s dominance in e-commerce, its cloud computing business, Amazon Web Services (AWS), has become the most crucial part of its growth since launching in 2006. From Q3 2019 to Q3 2022, AWS revenue has risen 130%, from $9.0 billion to $20.5 billion.
However, AWS growth has slowed in 2022, concerning investors. The cloud computing business saw revenue rise 27.4% in its latest quarter, a lower rate than Q2 2022’s increase of 33% and Q3 2021’s 39%.
Amazon is a strong business with a majority market share in the lucrative e-commerce and cloud computing industries. However, with a potential recession in 2022, its e-commerce business might continue suffering losses. An investment in Amazon would be less risky if AWS continued to see increasing growth, but that hasn’t been the case in 2022.
As a result, investors should remain cautious toward Amazon’s stock for now, at least until its cloud computing business can see a return to rising quarterly growth.
Apple: Outperforming the market
Like most tech stocks this year, Apple shares have dipped since January. However, while many titans of the industry, such as Microsoft (NASDAQ: MSFT) and AMD (NASDAQ: AMD), have seen their share prices fall 31.9% and 55.6% year to date, respectively, Apple’s has dipped at a more moderate 20.9% in the same period.
The company’s Q4 2022 earnings release on Oct. 27 proved many analysts wrong; revenue hit $90.15 billion, rising 8.1% year over year, while Wall Street had previously projected $88.9 billion. Additionally, despite a slowdown in the personal computer market in 2022, Apple reported 25% year-over-year growth in its fourth quarter, earning $11.5 billion against analyst forecasts of $9.36 billion.
For reference, one of Apple’s biggest competitors in personal computers, Microsoft, reported a slight decrease in its More Personal Computing segment, which includes its Surface laptop lineup, for the period that ended Sept. 30.
Apple’s latest earnings release has demonstrated the business’s ability to continue growing despite an economic slowdown. The company’s fiscal 2022 revenue of $394.3 billion and 8% year-over-year rise might pale in comparison to 2021’s 33% year-over-year revenue growth. However, it’s important to remember that last year was an economic boom in the tech market, with consumers homebound by pandemic lockdowns investing in home office setups and entertainment gadgets. As a result, 2021 and 2022 have been like night and day economically, with even marginal growth worth celebrating this year.
When it comes down to it, Apple’s stock is the better buy right now. The iPhone company is home to immensely in-demand products and services that seem capable of weathering the worst economic downturns. Meanwhile, Amazon has a badly hit e-commerce business that looks likely to suffer further declines in the next year, and the slowing growth of its AWS segment has done little to quell concerns for the future.
Additionally, because free cash flow will be a crucial metric in the wake of a potential recession, Apple’s $20.8 billion versus Amazon’s loss of $4.97 billion only makes the case for the MacBook manufacturer even stronger. Apple shares are undoubtedly the better buy.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, and Microsoft. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
