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Better Long-Term Buy: Amazon (AMZN) vs. Microsoft (MSFT) Stock

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Shares of both Amazon (AMZN - Free Report) and Microsoft (MSFT - Free Report) have been hurt by the recent market downturn that has seen the likes of Apple (AAPL - Free Report) , Netflix (NFLX - Free Report) , and other tech giants fall. With that said, both AMZN and MSFT are still up big over the last year and the companies are headed in the right direction.

AMZN Overview

Amazon’s Q3 revenues climbed by 29% to reach $56.6 billion, which fell short of Wall Street estimates and helped show that its days of massive top-line growth might be over simply because of its size. Still, the tech powerhouse is projected to grab roughly 50% of the total U.S. e-commerce market in 2018, up from 44% last year. Plus, Amazon’s advertising business is set to expand as more and more product searches begin on its site.

Jeff Bezos’ firm is now the third-largest digital advertiser behind only Facebook (FB - Free Report) and Google (GOOGL - Free Report) . On top of that, Amazon has expanded into the pharmaceutical industry and its Prime Video platform looks poised to stand out against Netflix and soon enough Apple (AAPL - Free Report) and Disney (DIS - Free Report) as it pushes deeper into live sports. And let’s not forget that Amazon is still a cloud-computing powerhouse.

MSFT Overview

Speaking of cloud computing, Microsoft is the second-largest cloud provider—behind only Amazon—having grabbed roughly 14% of the cloud market in the third quarter. This put MSFT in front of IBM (IBM - Free Report) , Google, and Alibaba (BABA - Free Report) . On top of that, the historic tech firm has continued to dive deeper into artificial intelligence and IoT.

Meanwhile, the company has bolstered its business through some significant acquisitions, which includes its June purchase of open source software powerhouse GitHub. Microsoft also landed some major contracts for its cloud and AI business this year, including Walmart (WMT - Free Report) . And let’s not forget that its personal computing business is massive and helped its most recent quarterly revenues jump 19% to $29.1 billion.

Stock Price Movement

As we mentioned at the top, both AMZN and MSFT have seen their stock prices fall recently. Amazon stock is down 16% over the last three months, while Microsoft dipped just around 2%. Yet, Amazon stock has blown away MSFT over the last decade, but that doesn’t really tell us much since the e-commerce firm has been on one of the most impressive runs in Wall Street history.

Investors should note that MSFT stock hovered at around $110 per share through late afternoon trading Friday, which marked a roughly 5% downturn from its 52-week and all-time high. Meanwhile, Amazon stock sat approximately 18% below its recent highs at around $1,686 a share.

 

 

Outlook

Looking ahead, Amazon is expected to see its Q4 revenues climb roughly 18.5% to reach $71.61 billion, based on our current Zacks Consensus Estimate. The company’s total fiscal 2018 revenues are projected to jump 30.8% to $232.69 billion. Plus, Amazon’s full-year 2019 revenues are expected to climb over 20% above our current 2018 estimate.

At the bottom end of the income statement, Amazon’s adjusted fourth quarter revenues are projected to skyrocket 153.7% to $5.48 per share. Meanwhile, AMZN’s fiscal 2018 earnings are expected to soar 328%. 

Microsoft’s outlook is a bit less impressive, which is to be expected based on its age. MSFT’s current quarter revenues are expected to jump 12.2% to $32.46 billion. The company’s full-year revenues are projected to climb at a similar rate to reach $124.08 billion—with the following year expected to jump 10% above that.

Furthermore, Microsoft’s adjusted quarterly earnings are projected to climb by 13.5% to hit $1.09 per share, while its full-year EPS figure is expected to expand by over 14%.

Bottom Line

Both Amazon and Microsoft have strong management teams and have expanded their offerings to better position themselves for the future. We should note that MSFT has earned more positive earnings estimate revisions recently. Plus, Microsoft has been a dividend payer for years and its valuation picture—trading at 23.7X forward earnings estimates compared to Amazon’s 64.3X—looks much better than its peer.

On the other hand, Amazon will likely pay a dividend once its outsized growth starts to slow. But Bezos and Amazon are poised to continue to expand into as many new industries as possible. Therefore, it seems like it is a toss-up between Amazon and Microsoft at the moment since both stocks offer investors different benefits.

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