After a turbulent period, the S&P 500 and Nasdaq have somewhat steadied, nudging upwards by 1% following a correction-induced selloff. Amidst this ambiance of volatility, two tech giants – Amazon (AMZN) and Microsoft (MSFT) – are now on investors’ radar for a potential bounce back.
Despite relinquishing a significant portion of their impressive gains earlier this year, the stocks of Amazon and Microsoft still boast a roughly 7% increase in 2024. Both companies recently outperformed expectations in their quarterly earnings reports, laying a sturdy foundation for prospective investors.
Image Source: Zacks Investment Research
Comparing Cloud Dominance
Amazon and Microsoft, with distinct business models, find themselves in competition as major cloud service providers. Amazon’s AWS stands as the leading cloud service provider, followed closely by Microsoft’s Azure cloud.
In its Q2 results unveiled last Thursday, Amazon’s AWS segment witnessed an 18% surge in sales, soaring to $26.28 billion and surpassing estimated figures by 1%.
Image Source: Zacks Investment Research
Concurrently, Microsoft disclosed results for its fiscal fourth quarter the previous Tuesday, reporting a $28.51 billion revenue from its Intelligent Cloud segment, aided substantially by Azure. This reflected a notable 19% upsurge from the same quarter in the past year, albeit marginally missing the anticipated $28.66 billion.
Perusing Growth & Projections
Amazon’s forecast anticipates a 10% growth in total sales for fiscal 2024, followed by an 11% escalation to $704.04 billion in FY25. On the earnings front, the e-commerce giant is poised to witness a 62% surge in annual earnings this year, equating to $4.70 per share as compared to $2.90 in 2023. Additionally, FY25 is expected to witness a further 24% hike in EPS to $5.84.
Turning to Microsoft, estimates predict a 13% increase in total sales for the current fiscal year of 2025, with a forecasted additional 13% spike in FY26 to $314.8 billion. Furthermore, Microsoft’s EPS is projected to escalate by 10% in FY25 and experience a subsequent 15% growth in FY26 to reach $15.04.
Analyzing Valuations
Post the recent market retreat, Amazon’s stock is trading at 34.8 times its anticipated forward earnings, while Microsoft is at 30.3 times. Both companies are currently maintaining modest premiums over the S&P 500’s forward earnings multiple of 21.8 times. Despite this premium position, Amazon’s stock resides at a substantial discount to its five-year median of 71.8 times, with Microsoft just below its own median of 32 times over the corresponding period.
The Verdict
Presently, both Amazon and Microsoft’s stocks hold a Zacks Rank #3 (Hold). The recent market unrest hints at potential better buying windows for these tech titans. Their robust growth trajectory and comparatively attractive valuations endorse them as sound long-term investments, particularly when the market turbulence settles to reveal clearer skies.
Research Chief Names “Single Best Pick to Double”
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This company caters to millennial and Gen Z audiences, churning out nearly $1 billion in revenue last quarter alone. The recent retracement marks an opportune moment to get on board. While not all our top picks hit the bullseye, this one could easily outshine earlier Zacks’ Stocks Set to Double, such as Nano-X Imaging, which soared by a remarkable 129.6% in slightly over 9 months.
