Amazon (AMZN) and Alphabet (GOOG) are two of the world’s most recognizable brands and Wall Street’s most coveted stocks, and the long-term trajectory of each blue-chip stock is still decidedly up. Plus, it’s estimated that roughly 40% of all web traffic is hosted by those two companies combined. But which looks like the better buy today, AMZN stock or GOOG stock?
Both stocks have share prices that are well into triple digits (over 2,100 for AMZN, over 2,200 for GOOG), despite serious drawbacks during the ongoing market sell-off. GOOG has suffered less damage from all the selling, down 20% year to date to AMZN’s 35% loss (yikes!). Going back a bit further, to just after the March 2020 Covid crash, the performance of both stocks has been far more palatable, with GOOG up 64% in the last two years vs. a 3.5% decline for AMZN. Over the last five years, it’s much closer, with GOOG up 156% vs. a 124% gain in AMZN.
Those are some impressive returns, especially when compared to the 66% return in the S&P 500 in the last five years. They’re the kind of returns that would make any growth investor happy. Now the question is: Can AMZN and GOOG repeat that performance over the next five years?
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It would be foolish to doubt either company at this point. That said, no stock continues to grow at such a breakneck pace forever. Just ask anyone who bought General Electric (GE) 10 or 15 years ago, when it ranked among the 10 largest companies in the world by market cap. So chances are, one or both of these blue-chip tech stocks will start to slow in the years ahead. In fact, we’ve already seen it from AMZN stock in the last six to nine months after its huge push in the first year of the pandemic, when everyone in America was doing all their shopping online.
Given that fairly complicated backdrop, I thought it might be a fun exercise to examine which four-figure stock is better positioned for future growth.
Here’s a closer look at AMZN stock and GOOG stock, broken into a few key numbers:
Tale of the Tape: AMZN Stock vs. GOOG Stock
Trailing P/Es: AMZN 55, GOOG 21
Forward P/Es: AMZN 42, GOOG 20
Estimated 2022 revenue growth: AMZN 11.9%, GOOG 16.1%
Estimated 2022 EPS growth: AMZN -75%, GOOG 0%
Cash per share: AMZN $130.54, GOOG $203.45
Institutional ownership: AMZN 60%, GOOG 66%
That comparison tells us that AMZN is still the more overvalued stock, even after an epic retreat in the last six months. However, until recently it had been the faster growing company on both the top and bottom lines; and it had been since in 2016. That was also the year Amazon first turned consistently profitable.
That said, Google has way more cash than Amazon – roughly 50% more in terms of total cash, with roughly a fifth as much debt. Considering that Amazon brings in nearly twice as much revenue as Google annually (though that gap is closing), that means that Amazon has been way more willing to spend its cash on things that will grow the company – the Amazon Video streaming service that is rivaling Netflix these days; a new foray into live sports with NFL broadcasts, helmed by a star-studded broadcast pairing of Al Michaels and Kirk Herbstreit; the Amazon Echo, Amazon Web Services, etc. Google looks more like a cash hoarder. The result is that Amazon stock has grown much faster than GOOG stock in the last decade, though that has certainly changed in the last two years.
The guess here is that Google will start loosening its purse strings in the coming years, devoting it to new, exciting products like the long-rumored Google Pixel Watch intended to rival the Apple Watch, a new Pixel smartphone, or perhaps Google will join Amazon, Netflix, Apple and Disney in the big-money streaming video wars. Regardless of what it comes up with, bet on Google spending some of its $134 billion cash stockpile soon. If it does, that could capture investors’ attention the way Amazon did up until the last year.
GOOG Has More Upside Potential
You can’t go wrong with either of these growth stocks. If you bought both of them five, 10 or even 15 years ago, you’ve made a LOT of money. But AMZN has been the better performer, at least up until recently. I think that might change in the years to come. Between its cash stockpile, untapped potential revenue streams, and cheaper valuation, I like GOOG stock to outperform AMZN in the next five years. In fact, that shift already seems to be taking place, with GOOG (-4%) massively outperforming AMZN (-34%) in the last year. It could be the start of a longer-term role reversal between two of the biggest, baddest tech stocks on the block.
Furthermore, after such extreme selling this year, both these stocks are cheaper than they’ve been at almost any point in the last decade. You could buy either of them here (again, I prefer GOOG), or wait for a clear bottom to be established (we’re not there yet). Either way, an investment in GOOG stock will likely turn out quite well five years from now.
For a list of the rare stocks that actually have momentum right now, consider taking a trial subscription to Cabot Top Ten Trader. In it, you’ll find the list of 10 stocks that are set to jump next week.
Do you own shares of Amazon, Google, or both in your portfolio? Which do you prefer?
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!
*This article is updated from an original version that was published earlier in 2017.