Amazon (AMZN -0.17%) investors had a stellar 2023 compared to the wider tech market (the stock rose 81% compared to the S&P 500's 24.2% gain). The e-commerce giant even outpaced well-loved tech giant Apple (AAPL 1.66%), which rose 49% on the year.
Amazon might still be the better choice for investors heading into 2024. Let's look at three great reasons to prefer Amazon over Apple shares right now.
1. Amazon's growth is strong
Wall Street is excited about Apple's pipeline of innovative product releases that includes refreshed iPhones, Macs, and smartwatches. These new devices should help the hardware giant return to sales growth over the next few quarters following rare declines in 2023.
Amazon has a brighter outlook, though. Sales in its e-commerce division are rising steadily today following the post-pandemic hangover. There's even more to be optimistic about in its services segment. That division expanded at a 15%-plus rate last quarter and now accounts for more than half of the wider business.
Booming demand for enterprise software services is a big reason why most Wall Street pros are forecasting 11% higher sales in 2024, or roughly double Apple's expected growth rate.
2. Margins and cash flow
Apple is far more profitable than Amazon, yet that gap appears to be closing. The e-commerce giant has slashed costs over the last year thanks to a new focus on efficiency. These moves helped cash flow post an epic comeback in 2023. In the 12 months that ended in late September, Amazon's free cash flow landed at $21 billion, compared to an outflow of nearly the same amount a year earlier.
AMZN Cash from Operations (TTM) data by YCharts
Amazon's profitability is moving higher as well, even as Apple's takes a step backwards. That metric improved to 5% of sales over the past year, up from 3% a year earlier. Apple's ticked lower, in contrast, through most of 2023. Investors shouldn't expect Amazon to approach Apple's 30% profit margin. But the stock could still generate excellent returns as Amazon moves toward double-digit profitability.
3. You already own Apple
Apple has a massive market capitalization of $3 trillion, or about twice Amazon's valuation. It also accounts for a huge portion of the total earnings of U.S. companies. These factors have made Apple the most heavily weighted stock on the S&P 500 index, which means you likely already have plenty of exposure to its business if you own index funds or tech-focused mutual funds. Owning Berkshire Hathaway delivers a lot of Apple exposure, too, given that it is the single biggest holding in Warren Buffett's massive portfolio.
Investors might want to look elsewhere for their next tech stock purchase, then. Amazon is a fantastic alternative given its large sales footprint and its dominant market position in attractive niches like cloud enterprise services.
Sure, the company isn't nearly as cash-rich as Apple, which is sending resources directly to its shareholders through a growing dividend and heavy stock buyback spending. But Amazon's improving financial strength, combined with its relatively cheap valuation, make it a great candidate for investors seeking a tech company that's not named Apple to place in their growth stock portfolio.
