Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Amazon Vs. Microsoft: Which Is A Better Buy Now?

Published 09/23/2020, 11:59 AM
Updated 09/02/2020, 02:05 AM

The world’s largest technology companies have carved out a unique role during the COVID-19 pandemic. They are now considered defensive plays thanks to their entrenched competitive position and relative immunity from the pandemic-induced economic downturn.

During the past two quarters, their earnings have shown that these tech giants have not only remained insulated from the global health crisis, but have actually thrived during one of the steepest economic downturns in U.S. history.

Though the rally of the past six months has pushed their stock prices into overbought territory, the correction that started this month is providing some better entry points for long-term, buy-and-hold investors.  

Below we take a look at Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT)—two companies with market caps of more than $1 trillion—to understand which stock is a better buy after the recent dip.

Amazon

E-commerce powerhouse Amazon.com proved to be a great bet during this pandemic. When consumers were forced to stay home, they had no other option but to go online to make purchases.

Amazon’s business model perfectly positioned it to expand its e-commerce dominance, further broadening its sales and reach. Its stock, which initially weakened during the early days of the virus outbreak, subsequently skyrocketed, almost doubling in value by early September.

That rally, however, is showing some signs of peaking, sending Amazon stock down about 14% from its record high, fuelling debate among investors whether it’s the right time to buy, or wait on the sidelines. It’s, of course, almost impossible to predict the short-term moves in the market, but looking at Amazon’s business model, it’s not difficult to conclude that this company will continue to benefit from the secular shift to e-commerce.

AMZN Weekly TTM

One of Amazon’s biggest strengths is its paid membership program, one of the largest in the world. In exchange for an annual fee, its Prime membership offers free, expedited shipping on a variety of items. Members also benefit from streaming movies, TV shows and music as well as members-only deals.

Over time, the program has helped entice customers who once might have only used Amazon for books and movies. Today, Prime boasts more than 150 million paid members.

Though Amazon’s online marketplaces generate most of the Seattle-based company's revenue, it's not the most profitable segment. Amazon is also the world’s largest cloud-infrastructure provider, with Amazon Web Services generating the largest share of the profit.

Due to this business strength, all 36 major analysts now have a buy rating on Amazon, according to TipRanks.com. Bernstein, the last major investment firm with a hold rating, upgraded the stock yesterday, saying it was using the recent pullback to go long the shares after missing the comeback since March. According to Bernstein: 

“COVID has pulled forward secular trends, from e-commerce to digital advertising and cloud, with Amazon as a primary beneficiary across all three revenue pools.”

The firm also noted that the e-commerce giant has “quietly made substantial inroads into grocery and ‘shopping’ verticals,” which should only increase the company’s share positions down the line as brick-and-mortar stores reopen.

Microsoft

Since March, Microsoft shares have had an amazing run. Investors sent the stock soaring after seeing strong sales growth powered by sustained demand for its cloud-computing services, as customers shift more work online during the coronavirus pandemic.

Sales for Azure, Microsoft’s closely watched cloud-computing service, grew by 47% in Q2 from a year earlier. The business notched 59% growth in the preceding period and 64% in the same quarter of the previous year.

As the post-pandemic rally falters, Microsoft shares also lost some ground, falling about 13% from a record high reached this month. It’s likely that Microsoft could head lower if the current market correction deepens.

Microsoft 1-Year Chart.

That said, the Washington state-based software behemoth is one of the safest long-term bets in the technology space. That makes its shares worth buying when they become cheaper. The reason for this optimism is simple: Microsoft has made all the right moves during the past decade. It’s now in the gratifying position of being able to mine the rewards of its previous investments.

Following a massive transformation spearheaded by Chief Executive Satya Nadella, which started more than five years ago, the company has become one of the most powerful players in the fast-growing cloud-computing market, commanding the segment's second-largest market share, behind only Amazon.

Morgan Stanley analysts recently reiterated their “overweight” rating on Microsoft, raising their price target to $245 from $230. Combined with “mid-teens” earnings growth, the analysts see Microsoft’s total return profile as being at a “durable and attractive level” during these unclear times.

Paired with 10% revenue growth, further margin expansion, and share repurchases, the analysts believe the stock to have a premium return profile “versus the broader market, which is still not fully reflected in the shares.”

Add Microsoft's rock-solid dividend and excellent track record on payouts to the stock's appeal and it looks like an even more attractive investment—especially during an uncertain economy.

Since 2004, when the tech giant first began paying a dividend, its payout has swelled more than four-fold. Currently its annual yield is 1.11% with a quarterly payout of $0.56 per share, after incorporating a 10% dividend hike announced last week.

Bottom Line

As investors continue to remain jittery about the global economic outlook amid fears about the second wave, any weakness in both Amazon and Microsoft stock should be considered a buying opportunity. Both companies are among the most resilient tech giants, and each is well positioned to continue on their growth trajectories.

Latest comments

Gaming industry : cd project red next big mogul in the industry 21.000% increase
Buy Apple
So writer didnt say what he would choose from both. Anyways, i’d pick msft over amazon, as msft has more room to go grow and recently they started to believe after seeing aapl growth.
SQQQ is the better buy short term
none is a buy now sir
I agree with you
Nothing is a sell, either, until the market retests resistance and fails.
my option  amazon is the best stock more then microsoft
Buy Long billgates himself
both are still heading up long
thank you for the guidance. Both are excellent shares .
Would be better to own stocks in both of them!
Microsoft is a better choice for investing. MSFT gives dividend while AMZN does not give any dividend and the officers are the ones making money by selling stock obtain free or through options. See the list of officers selling by the thousand share with no cost.
Thanks for the reminder, I was going to add MSFT to my dividend portfolio but at the time it was over priced will have to check the current price
Interesting article. So when one wants to buy on both, how do I go about?
If you don’t have enough money to buy both, buy fractional shares, which are now offerend on most public trading platforms including Ameritrade, Schwab etc.
Did you check insider trading for AMZN? Amazon's insiders are selling at zero cost, but they will not give any dividend while the public is pushing the price up
 In the month of August 2020,Bezo received almost 3T share as gift and sold it a few day at market.. "GIFT" https://finance.yahoo.com/quote/AMZN/insider-transactions?p=AMZN
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.