With the S&P 500 having recently surged to a new high, investors are officially in a bull market. But the spoils of the stock market's incredible rally have been unevenly distributed -- and that's putting it mildly.
For example, U.S.-based Amazon (AMZN 3.43%) and China-based Alibaba Group (BABA 0.59%) are two titans of the e-commerce and cloud computing industries that have seen drastically different stock performance over the last year. While Amazon's share price has surged 60% across the stretch, Alibaba's has dipped by approximately 42%.
Of course, that doesn't necessarily mean the stocks will continue on their recent trajectories. If you're wondering which one of these online retail leaders is the superior investment opportunity for the new bull market, read on to see why two Motley Fool contributors have wildly different reads on which company you're better off putting your money behind.
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Alibaba's risks make Amazon the better buy
Keith Noonan: While U.S. stocks are back in bull mode, the same can't be said for Chinese stocks. The latter's market remains deep in bear territory, and I think that makes it harder to get excited about Alibaba if you're looking for bull market picks.
Admittedly, Alibaba is a good company with some strong competitive advantages. I also think that its stock trades at deeply depressed levels compared to its fundamentals. But in many respects, fundamentals haven't been the driving factor in shaping its recent stock performance -- and there's a risk that this trend will continue.
China's economic recovery coming out of the pandemic has been uneven and largely underwhelming. Additionally, the country's government has frequently taken steps to curb the power of large tech companies including Alibaba. In turn, that has made businesses less competitive and hurt their growth potential.
Making matters worse, Alibaba's valuation could continue to be depressed by rising tensions between the U.S. and China. As the geopolitical rivalry between the two world powers has intensified, many institutional investors have opted to reduce their holdings in Chinese stocks. This trend could intensify if relations between the countries continue to deteriorate.
By comparison, I think that Amazon stands out as a much safer bull-market buy while still offering strong return potential. Trading at roughly 43.5 times this year's expected earnings, it's clear the company has a much more growth-dependent valuation than Alibaba. But its business also looks stronger overall, and the associated macroeconomic and geopolitical risks are much lower.
Amazon is still in the early stages of benefiting from the rise of artificial intelligence, and it already enjoys leading positions in e-commerce, cloud computing, and digital advertising. The company also has a proven penchant for innovation and navigating challenging business cycles.
Alibaba's price is a fraction of Amazon's
Parkev Tatevosian: It is interesting to compare these two stocks, mainly because Alibaba is sometimes called the "Amazon of China." However, the considerably cheaper valuation is the significant advantage of buying Alibaba stock over Amazon. Like Amazon, Alibaba has done an excellent job achieving economies of scale as it has expanded revenue to increase profitability.
Indeed, Alibaba's revenue exploded from $8.5 billion in 2014 to $126 billion in 2023. The company did have a down year in revenue in 2023, primarily due to the economic impacts of COVID-19 policies in China. It would be reasonable to assume Alibaba will return to growth in 2024. More importantly, Alibaba's operating income increased from $4 billion to $14.9 billion between 2014 and 2023. Of course, there are significant risks with investing in a company that operates primarily in China. The government there is not as friendly to business as the U.S. government.
BABA PE Ratio (Forward 1y) data by YCharts
However, I will argue that the valuation has more than accounted for that fact. According to the same metric, Alibaba is trading at just 7.2 times next year's expected earnings, which is only a fraction of Amazon's valuation. Investors are understandably adjusting the price lower because of the geopolitical risks. Still, the risk versus reward is worthwhile for investors interested in Alibaba stock.
So which stock is the better buy?
As it stands, Amazon and Alibaba have notably different valuation profiles and macroeconomic backdrops. For investors seeking deep value plays, Alibaba is likely the better portfolio fit right now. On the other hand, those concerned about the risks associated with investing in Chinese stocks will likely find Amazon to be the better buy.
But investors don't necessarily have to choose between owning one stock or the other. If you're looking to build broad-based exposure to the growth of the global e-commerce and cloud-computing industries, owning both stocks could be the right move.
