Markets stabilized today with the S&P 500 and Nasdaq rising 1% after a correction-like selloff over the last week. As volatility fears start to settle, big tech stocks like Amazon (AMZN) and Microsoft (MSFT) are two of the prominent names that investors may be eyeing for a rebound.
Despite giving back much of their gains this year, both Amazon and Microsoft’s stock are still up just over +7% in 2024, with both companies recently exceeding their quarterly earnings expectations.
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Cloud Dominance Comparison
Although they have different business models, Amazon and Microsoft compete as cloud providers. Amazon Web Services (AWS) leads as the largest cloud provider, followed by Microsoft’s Azure cloud.
Amazon’s AWS segment sales spiked 18% to $26.28 billion, exceeding estimates by 1%. Meanwhile, Microsoft’s Azure helped the software giant generate $28.51 billion for its Intelligent Cloud segment, reflecting a 19% rise from the previous year’s quarter.
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Growth & Outlook Analysis
Amazon’s total sales are forecasted to increase by 10% in fiscal 2024 and projected to grow another 11% in fiscal 2025 to $704.04 billion. The e-commerce giant’s annual earnings are expected to rise by 62% this year to $4.70 per share, compared to $2.90 in 2023, and further increase by 24% to $5.84 in fiscal 2025.
On the other hand, Microsoft’s total sales are expected to rise by 13% in the current fiscal year and forecasted to jump another 13% in fiscal 2026 to $314.8 billion. Additionally, Microsoft’s EPS is anticipated to increase by 10% in fiscal 2025 and further expand by 15% in fiscal 2026 to $15.04.
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Valuation Comparison
After their recent pullbacks, Amazon’s stock trades at 34.8X forward earnings, with Microsoft at 30.3X. Amazon’s stock is trading at a modest premium to the S&P 500’s 21.8X forward earnings multiple but at a discount to its five-year median of 71.8X. Microsoft’s valuation is slightly below its own median of 32X during this period.
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Final Thoughts
Both Amazon and Microsoft’s stock currently hold a Zacks Rank #3 (Hold). While recent market volatility may present better buying opportunities, the growth prospects and attractive valuations of these tech giants make them solid long-term investments, especially as the dust settles.
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