We're constantly surrounded by technology, from smartphones to online shopping to watching streaming TV. With technology such a huge part of our everyday life, it only makes sense that several top tech companies boast some of the biggest market caps around.
A select group of these companies have even received their own acronym -- FAANG stocks. The term originally referred to Facebook (now Meta Platforms), Amazon.com (AMZN 3.43%), Apple, Netflix, and Google (now part of Alphabet (GOOG 9.96%) (GOOGL 10.22%)).
Two of these five companies, Alphabet and Amazon, compete against other. Which is the better FAANG stock? Here's how the two giants stack up against each other.
The case for Alphabet
Any argument for buying Alphabet stock should begin with the company's impressive moat. Deep-pocketed rivals have tried to dethrone Google Search -- and failed. The most widely used mobile operating system isn't Apple's iOS, it's Alphabet's Android. YouTube has 2.6 billion monthly active users, more than twice as many as its nearest rival, TikTok.
This moat translates to reliable and growing advertising revenue for Alphabet. The company's advertising revenue jumped 22% year over year in the first quarter of 2022 to $54.7 billion. But Alphabet also makes money in other ways outside of advertising.
Google Cloud has become a huge growth driver for Alphabet. Revenue for the cloud hosting business soared nearly 44% year over year in Q1 to $5.8 billion. YouTube TV ranks as a formidable competitor to cable providers.
Alphabet has multiple other avenues to generate growth, as well. Its famous "other bets" notably include self-driving car technology leader Waymo, drone-delivery business Wing, and healthcare units Calico and Verily.
In addition, Alphabet's cash stockpile of nearly $134 billion gives the company a lot of flexibility to reward shareholders. The company's board recently authorized a stock buyback program of up to $70 billion.
The case for Amazon
Amazon's moat isn't too shabby, either. The company remains the clear leader in e-commerce. It just had the biggest Prime Day ever, with more than 300 million items purchased worldwide.
The company isn't limited to online shopping, though. Amazon owns 46 Amazon Fresh grocery stores in addition to more than 500 Whole Foods stores. It recently began offering the "Just Walk Out" no-checkout technology to other brick-and-mortar retailers.
Amazon Web Services (AWS) set the standard in the cloud hosting market. Net sales for AWS jumped 37% year over year in Q2 to $18.4 billion. The unit produced greater operating income ($6.5 billion) in the quarter than Google Cloud generated in revenue.
Amazon's own electronic devices, including Fire TV, Echo virtual assistant, and Blink home security camera, ranked among the best-selling items on the recent Prime Day. The company has other potential growth drivers with its Amazon Care telehealth service and self-driving car company Zoox.
Investing in new initiatives and/or future acquisitions shouldn't be a problem for Amazon. The company ended the first quarter with a cash position of $42.4 billion.
Better FAANG stock?
I personally own both Alphabet and Amazon. However, my view is that there are two key differentiating factors between them right now.
First, Alphabet's growth is much more impressive. Amazon's net sales increased only 7% year over year in Q1. Its bottom line and free cash flow deteriorated, compared to the prior-year period.
Second, Alphabet's valuation is more attractive than Amazon's. Shares of Alphabet trade at under 20 times expected earnings with a price-to-earnings-to-growth (PEG) ratio of 0.79. Amazon's forward earnings multiple tops 71, with its PEG ratio at nearly 4.5.
Both of these FAANG stocks should continue to be big winners for investors over the long run. But if I had to pick only one of them, it would be Alphabet.
