Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) are two of the most valuable companies in the world.
Alphabet has a robust business centered around YouTube and Google, and its valuation is around $4.1 trillion, with Apple and Nvidia being the only other “Magnificent Seven” stocks to command a higher market cap. Amazon, whose online marketplace has become the go-to shopping option for many consumers around the world, has a more modest valuation of $2.8 trillion.
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Both of these tech stocks have made investors rich over the years. Today, they’re the cheapest stocks within the Magnificent Seven. Which one should investors buy?
Image source: Getty Images.
Which business is growing faster?
Both Amazon and Alphabet have tremendous growth opportunities due to artificial intelligence (AI). And while they have both generally been moving in the same direction, Alphabet has had a slightly better growth rate in recent years.
AMZN Revenue (Quarterly YoY Growth) data by YCharts
Amazon, however, has a much larger business, as it has generated $776 billion in revenue over the past four quarters, versus $446 billion for Alphabet. While both tech companies are behemoths, Amazon’s is significantly larger in terms of revenue, which can make it more challenging for it to continue to grow at a high rate.
Alphabet’s business isn’t as big, but it generates better margins
What I like about Alphabet’s business is how efficient and highly profitable it is. Unlike Amazon, which is knee-deep in competition with Walmart and online retailers trying to undercut its marketplace, Alphabet is working from a much more dominant position. There aren’t any serious rivals to YouTube or Google Search. While there are alternatives out there, they don’t pose serious threats, as the company dominates search and the video-sharing market.
The company demonstrates its power when it adjusts its algorithms, which can make or break the traffic a video or a website gets from search results. Amazon simply doesn’t have the same type of power that Alphabet does. And that’s a big reason why Alphabet is able to secure stronger profit margins.
In the past four quarters, Alphabet has amassed $148 billion in operating profit, for an impressive margin of 33%. Amazon, by comparison, has averaged an operating margin of just 12% over the past 12 months.
