Which FAAMG share is a better investment?


In terms of market capitalization and influence in the stock market, FAAMG stocks – Facebook, Amazon, Apple, Microsoft and Google (Alphabet) – are the leaders. But between Microsoft Corporation (MSFT) and Amazon.com, Inc. (AMZN), which one is the best buy now?

MSFT develops, supports, licenses and sells various software products, services and solutions around the world. The company also manufactures and sells PCs, tablets, gaming and entertainment consoles, smart devices and related accessories through OEMs, distributors, resellers, digital markets and retail stores. By comparison, AMZN is the world’s largest e-commerce company with a wide range of products. And the company’s cloud computing platform, Amazon Web Services (AWS), is one of the largest platforms in the digital computing space globally. It offers personalized shopping services, web-based credit card payment, and direct-to-customer shipping.

FAAMG actions make up more than a third of the S&P 500, which is widely recognized as the best representation of the US economy. Keeping pace with changing consumer demand, these technology-driven companies have grown tremendously over the years. The growing dependence on technology solutions in the digital age is expected to continue to drive the performance of FAAMG stocks, and the technology sector is expected to reach $ 5,000 billion in 2021. Thus, MSFT and AMZN should benefit from it.

But while AMZN has fallen 2.5% in the past three months, MSFT has jumped 12.9%. In terms of price performance over the past nine months, MSFT is a clear winner with gains of 35.5% against AMZN’s 4.9% returns. But which of these titles is the best choice now? Let’s find out.

Latest developments

MSFT and EY (or Ernst & Young Global Limited), a multinational professional services network in London, expanded their strategic relationship on August 11, 2021, to further align EY’s business ingenuity with MSFT’s cloud technologies by launching new solutions and platforms. By further expanding EY Microsoft Services Group operations, EY hopes to help customers access managed services that fuel customer transformation, unleash value, and build a reliable and unique data fabric across the organization. business to achieve growth of $ 15 billion. opportunity over the next five years.

On September 22, 2021, AMZN’s Amazon Web Services (AWS) subsidiary announced plans to open an infrastructure region in Aotearoa, New Zealand in 2024. The new AWS Asia Pacific (Auckland) region will allow to more developers, businesses, governments and nonprofits. organizations to run their applications, store data securely, and efficiently serve end users from data centers. The ability to support customer business continuity and provide low latency for high availability applications that use multiple Availability Zones should allow AMZN to generate greater demand in the future.

Recent financial results

MSFT’s total revenue increased 21.3% year-on-year to $ 46.15 billion for its fiscal fourth quarter, ended June 30, 2021. The company’s gross profit was 32 , $ 16 billion, up 25.2% from the previous year. Its operating profit was $ 19.10 billion, a 42.4% year-over-year improvement. MSFT’s net profit amounted to $ 16.46 billion, up 46.9% from the same period a year earlier. Its EPS increased 48.6% year-on-year to $ 2.17. As of June 30, 2021, the company had $ 14.22 billion in cash and cash equivalents.

For its fiscal second quarter, ended June 30, 2021, AMZN’s total net sales increased 27.2% year-on-year to $ 113.08 billion. The company’s operating profit was $ 7.70 billion, indicating a 31.8% year-over-year improvement. While its net profit increased 48.4% year-on-year to $ 7.78 billion, its EPS increased 46.8% to $ 15.12. The company had $ 40.38 billion in cash and cash equivalents as of June 30, 2021.

Past and expected financial performance

MSFT’s revenue and net income have grown at CAGRs of 15.1% and 54.6%, respectively, over the past three years. The company’s EPS has grown at a CAGR of 55.8% over the past three years.

Analysts expect MSFT’s EPS to grow 13.7% year-on-year in the current quarter, ending September 30, 2021, 8.9% for the current year, and 14, 7% next year. Its revenue is expected to improve 23.2% year-over-year in the current quarter, 14.1% for the current year and 12.9% next year. The stock’s EPS is expected to grow at a rate of 15.3% per year over the next five years.

In comparison, AMZN’s revenue and net profit grew at a CAGR of 28.7% and 67.4% over the past three years, respectively. The company’s EPS has grown at a CAGR of 65.7% over the past three years.

AMZN EPS is expected to decline 27.5% year-on-year in the current quarter, ending September 30, 2021, and increase by 27.3% in the current year and 25.9% next year. Its revenue is expected to grow 16.2% year-over-year in the current quarter, 23.4% for the current year and 18.4% next year. Analysts expect the stock’s EPS to grow at a rate of 35.8% per year over the next five years.

Evaluation

In terms of non-GAAP futures P / E, AMZN is currently trading at 64.47x, 89.4% higher than MSFT’s 34.04x.

In terms of forward EV / EBITDA, AMZN’s 24.19x compares to MSFT’s 23.63x.

Profitability

AMZN’s last 12 months turnover is almost 2.6 times that generated by MSFT. However, MSFT is more profitable, with a rate of 48.1% EBITDA margin against 13.4% for AMZN.

In addition, MSFT’s ROE, ROA and ROTC values ​​of 47.1%, 13.8% and 20.6%, respectively, compare favorably to AMZN’s 31.2%, 6% and 9.2%. .

POWR odds

While AMZN has an overall C rating, which translates to Neutral in our property POWR odds system, MSFT has an overall rating of B, which is equivalent to Buy. POWR scores are calculated taking into account 118 separate factors, each weighted to an optimal degree.

MSFT has an A rating for sentiment, which is consistent with favorable analyst estimates. Analysts expect MSFT’s EPS to rise 13.7% year-on-year in the current quarter, ending September 30, 2021, to $ 2.07. However, AMZN’s C rating for Sentiment is in line with relatively lower analyst estimates. Its EPS is expected to reach $ 8.97 for the current quarter, ending September 30, 2021, which is a 27.5% year-over-year decline.

MSFT has a B rating for stability, which is consistent with its lower volatility than the broader market. The company has a beta of 0.78. However, AMZN’s C rating for stability is in line with its slightly higher volatility. AMZN has a beta version of 1.14.

Of the 76 actions of the Internet industry, AMZN is ranked # 25. On the other hand, MSFT is ranked # 14 out of 149 stocks in the Software application industry.

Beyond what we have stated above, our POWR rating system has also rated MSFT and AMZN for growth, value, momentum and quality.

Get all AMZN ratings here. Also, Click here to see additional POWR ratings for MSFT.

The winner

Despite increasing competition in the tech industry and increasing regulatory oversight, MSFT and AMZN are well positioned to continue to grow. However, we believe its lower valuation and higher profitability makes MSFT a better buy here.

Our research shows that the odds of success increase when betting on stocks with an overall buy or strong buy POWR rating. Click here to access the best rated stocks in the Software – Applications sector, and here for those in the internet industry.


MSFT shares rose $ 0.13 (+ 0.04%) on Friday after hours of trading. Year-to-date, MSFT has gained 35.47%, compared to a 19.89% increase in the benchmark S&P 500 over the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a particular interest in finding market inefficiencies. She is passionate about educating investors so that they can be successful on the stock market. Following…

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