Apple Stock Vs Amazon: Which Is Best?

Five tech companies have an outsized influence on the market, thanks to their massive size and scope. They are often referred to collectively as the FAANG stocks – Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG). Combined, the two A’s – Amazon and Apple – have a market cap of nearly $3.7 Trillion. 

Early Apple and Amazon shareholders have multiplied their investment many times over, but that doesn’t mean new investors have nothing left to look forward to. Both Apple and Amazon are growing steadily, and they have the talent and resources to lead their respective markets through creativity and innovation.

Of course, buying shares of both isn’t right for everyone. In a direct contest, Apple stock vs. Amazon: which is best? 

Apple Stock Set To Benefit From 5G

The iPhone has been critical to driving Apple’s revenues, so the decline in iPhone sales over the past few years has been unsettling for some shareholders.

The issue with iPhones wasn’t related to changing consumer preferences, technological challenges, or competing products. It simply came down to the fact that the market was saturated. Everyone who wanted an iPhone had one, and the high cost of upgrades discouraged iPhone users from trading up. 

Apple saw its vulnerability in relying too much on the iPhone for revenue, and it has since expanded its product lines and redoubled efforts to increase sales in its Services, Mac, Wearables, Home and Accessories, and iPad segments. That strategy has been effective, but all of a sudden, iPhones are back in the spotlight. 

The transition to 5G technology requires new mobile devices, and Apple is fully prepared to meet that need. The company projects a dramatic upswing in iPhone sales over the next two years, which – when combined with growth in other divisions – points to promising returns for investors.

All in all, most analysts agree that Apple is a smart buy. 

Amazon Earnings Soared (& Should Continue To Rise)

Amazon was already going strong at the start of 2020, but the pandemic turbo-charged its revenues.

Many non-essential brick-and-mortar stores closed temporarily, and consumers were reluctant to risk COVID-19 exposure by patronizing the ones still open. Instead, they shifted towards e-commerce in dramatic numbers, which was nothing short of a windfall for Amazon.

That, in addition to increased demand for Amazon’s cloud services, has created a scenario in which Amazon can’t lose. 

In the third quarter of 2020, Amazon’ revenue went up by 37 percent to a total of $96.1 billion. That figure is particularly impressive considering it is higher than analysts predicted – and in fact, it even exceeded guidance from the company’s leaders.

Earnings per share increased well-above expectations, zipping from $4.23 to $12.37. 

The fascinating thing about Amazon is that industry experts agree this impressive performance isn’t going to disappear when COVID is brought under control. The company is now seeing returns from the costly infrastructure  investments made over the past ten years, and those returns will continue growing with or without a pandemic. 

In other words, when it comes to continued growth and generating value for shareholders, there is no end in sight for Amazon. That makes Amazon a strong buy, especially for investors looking to build a long-term portfolio.

Could A Bite Be Taken Out Of Apple Share Price?

No one is suggesting that Apple is a risk of losing its competitive edge over the next few years, but there are analysts who believe a drop in Apple stock is likely.

They are concerned that sales of the 5G-enabled iPhone 12 won’t hit the numbers baked into Apple’s current share prices due to external factors like chip shortages.

Since current share prices reflect expectations for blockbuster iPhone 12 sales, Apple’s stock will suffer if iPhone 12 sales fall short. 

A second concern for those considering a purchase of Apple stock is increased attention from antitrust regulators. That’s not exclusive to Apple – all of the big tech companies are under scrutiny – but there could be a negative impact to Apple stock if tech-focused regulation tightens.

For example, there is criticism of an agreement between Apple and Google that makes Google the default search engine on all Apple products.

Google pays big bucks for that privilege, so any requirement to dissolve the relationship will impact Apple’s bottom line. 

Is Amazon Too Big To Not Be Broken Up?

While Amazon is generally viewed as a strong choice, there is a potential risk that keeps industry analysts up at night.

Antitrust lawmakers have had their eye on big tech for some time, and there is a real possibility that sooner or later, legislation will pass to break up the largest companies.

Such legislation would require Amazon to divide up its business units – a move that would likely have a negative impact on profits. 

Of course, that particular issue doesn’t pose imminent danger, as there is nothing in the works quite yet. Industry experts and market analysts are keeping a close eye on activity in Congress, and most agree there will be plenty of warning before investors are affected.

Amazon Vs Apple Stock: The Bottom Line

Both Amazon and Apple are smart additions to your portfolio, but if you must choose one, Amazon has a slight edge.

As a result of the pandemic, consumers are making the transition to e-commerce much more quickly than they might have otherwise, but that doesn’t mean a drop once COVID is eliminated. It is more likely that e-commerce will maintain its momentum and continue to grow rapidly over the next five years. 

Meanwhile, Amazon’s cloud services are gaining traction, and all signs point to steady increase in demand. Both of these trends are slightly more reliable drivers of revenue than the transition to 5G services, making Amazon a better buy. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.