A match-up between Amazon (AMZN +0.34%) and Home Depot (HD +3.63%) may seem odd at first blush, but I know from experience that it's not uncommon for me to decide between two very different places to put my money when making a financial decision.
These companies are both leaders in their respective markets, but their stock performance has diverged lately. So, let's look at each one to find out which is the better stock to buy right now.
What's happening with Amazon
Amazon is well known for its e-commerce platform, which has 40% of the U.S. market, compared to Walmart's 7%, but the company's handful of other services are driving much of its growth.
For example, the company's cloud computing business, Amazon Web Services (AWS), generated $28.8 billion in sales in the most recent quarter -- just 15% of total company sales -- but accounted for half of Amazon's operating income. AWS holds a 31% share of the cloud market right now, while Microsoft trails with 20%.
NASDAQ: AMZN
Key Data Points
There's a strong case to be made that AWS could be poised for substantially more growth in the coming years. Many artificial intelligence (AI) services run on cloud computing, and as more companies and individuals tap into AI, they'll likely spend more on cloud services. Based on that demand, Goldman Sachs estimates that AI will push global cloud computing sales to $2 trillion by 2030.
Amazon recently reported its fourth-quarter results, with sales rising 10% to $187.8 billion and earnings per share up 54% to $1.86, both ahead of Wall Street's consensus estimates. And the company's advertising business, once an afterthought, now has sales of $17.3 billion.
With Amazon's ability to continue posting impressive sales and earnings and its long-term potential to tap into AI cloud revenue, there's a lot to like about buying and holding this stock.
What's happening with Home Depot
Home Depot won't release its fourth-quarter results until later this month, but management has already given investors some insight into the upcoming year on the third-quarter earnings call. CEO Ted Decker said the company continues "to see pressure on larger remodeling projects, driven by the higher interest-rate environment and continued macroeconomic uncertainty."
Things might not get better anytime soon, either. The latest January inflation data showed that the Consumer Price Index rose by 3% during the month, higher than expected. That news prompted Federal Reserve Chairman Jerome Powell to say that the central bank's work isn't yet done, indicating that interest rate cuts aren't on the table. Home Depot's shares fell on that news.
Home sales have slumped to their lowest level in 30 years, causing pain for the home improvement chain. When people don't buy and sell homes, they have fewer DIY projects. With high interest rates likely to stick around longer, many potential homebuyers will continue to stay on the sidelines and avoid big home projects.
NYSE: HD
Key Data Points
Same-store sales fell 1.3% in the third quarter, and management estimated they'll be down 2.5% for the year. The company is optimistic that the market will eventually revive, but investors may be waiting awhile before the housing market makes a comeback. Until it does, Home Depot is in a holding pattern.
The verdict: Amazon is the better stock
I'm not pessimistic about Home Depot's long-term prospects, but with the company clearly being affected by the slow housing market, I think buying Amazon is the better option right now.
Admittedly, you'll pay a bit of a premium for the company's stock right now -- its shares have a forward price-to-earnings multiple of 35 -- but with long-term prospects in AI cloud computing and its dominance in e-commerce, that should help propel Amazon.
