When looking at stocks to buy, investor attention might go to the most dominant and well-known businesses out there. This will naturally lead to technology companies that have strong market positions, popular products and services, and perhaps a presence in the booming artificial intelligence (AI) market.
Apple (AAPL 2.01%) and Amazon (AMZN 1.38%) come to mind. Over the long term, they have both been fantastic stocks to own, doing a great job compounding shareholder capital. And today, they command multitrillion-dollar market caps.
Both businesses have their own investment merits. But which is the best stock to buy right now?
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Apple is moving slowly with AI, but the moat couldn't be wider
NASDAQ: AAPL
Key Data Points
The biggest knock on Apple in recent years has been its unhurried approach to AI. Major tech enterprises across the board are moving incredibly fast at building out the necessary infrastructure and software capabilities to position themselves to become leaders in the AI market.
Apple, in typical fashion, started out being cautious, as its usual strategy isn't to be first, but to be the best. However, the Apple Intelligence features on its smartphones aren't turning any heads. And an upgraded Siri launch has been delayed until next year.
That still doesn't take away from Apple's wide economic moat. The company's competitive position is supported by its strong brand, with Apple arguably being the most recognizable business on Earth. The brand resonates with consumers across the globe, thanks to the company's beautifully designed hardware and software offerings, superior user experience, and premium positioning. The elevated retail experience also has an impact.
The moat is also helped by Apple's powerful ecosystem. This combination of products and services is what makes the business truly one-of-a-kind. Customers are essentially locked in, with Apple being able to generate profits on its hardware devices, while also raking in high-margin revenue on its fast-growing services segment.
There are very few companies as financially sound as Apple. Its net profit margin has averaged 25.5% in the past five years. It collects massive amounts of free cash flow. And the balance sheet is clean, with $34 billion of net cash on the books (as of Sept. 27). This reduces risk for investors.
Amazon has multiple growth drivers that will push it forward
NASDAQ: AMZN
Key Data Points
Amazon, on the other hand, is already atop the AI race. It's planning to spend a whopping $125 billion on capital expenditures this year to bolster its technical infrastructure. That's an easy capital allocation decision for the leadership team to make, as they are seeing robust demand from customers for AI-related products and services.
This shows up in Amazon Web Services (AWS), whose revenue shot up 20% year over year in Q3. This booming segment is also very profitable, bringing in trailing-12-month operating income of $43.8 billion.
Besides cloud computing, which itself is poised to be a $2.4 trillion market worldwide in 2030, Amazon dominates online shopping. Nearly 40% of all U.S. e-commerce activity happens on its marketplace, giving it an advantageous position as buyer behavior keeps moving to digital channels.
Investors might not realize that Amazon reported $17.7 billion in digital ad sales in the third quarter, a major growth engine that is likely also producing high margins. Amazon also has a presence in streaming entertainment, autonomous driving, and healthcare.
I believe Amazon is in a better position to increase its revenue and earnings power at a faster rate than Apple, thanks to those secular trends working in its favor. Valuation matters as well. Amazon stock's price-to-earnings ratio of 32.1 is below Apple's multiple of 36.6, given the former the upper hand.
With a time horizon looking out over the next five or 10 years, I view Amazon as the best stock to buy right now.
