Apple vs. Amazon: Which is the best growth stock?

Today, I ask the question: which is the best growth stock, AAPL or AMZN?

Obviously, this is a complex question to deal with. I approach it from the perspective of (1) historical share price performance and (2) the current outlook for EPS growth relative to P/E.

Figure 1: Apple vs. Amazon: What is the best growth stock? — **Figure 1:** Apple vs. Amazon: Which is the best growth stock?

Wired

(Learn more about Apple Maven: Apple Stock: What Rising Interest Rates Mean for Investors)

AAPL or AMZN: who did better?

I wrote recently about how a patient and lucky investor could have won over 370,000% By buying Apple stock in 1982 and holding it to this day. The implied annualized return of over 22% per year throughout the 40-year period has been impressive.

But what about Amazon stocks? Has it done better than the AAPL over time?

The comparison is difficult because Amazon is a much younger company. While Apple went public in 1980, the Seattle-based cloud and e-commerce giant has only been trading publicly since 1997. But we can still look at the above question from two different angles.

First, let’s compare the performance of Apple stocks vs. that of Amazon shares since 1997, when the shares of both companies traded on open markets.

The graph below shows that AMZN has produced only slightly more wealth for its shareholders over the past two and a half decades, considered Apple dividends. An initial $1,000 investment in AMZN in 1997 would have been worth $1.18 million today versus $1,000,000. $1.08 million in the case of AAPL.

Notice that if I had asked this same question in 2021, the answer would have been different. In November last year, betting on Amazon stocks in the late 1990s would have produced about twice as much wealth as investing in Apple stocks during the same period.

Figure 2: apple vs. Amazon portfolio growth.

Portfolio Viewer

But the above comparison may not be fair. Here we are pitting a company that was more mature in the 1990s (Apple) against one that was an IPO around the same time (Amazon) and, therefore, better suited for hyper-growth.

So the second approach I take is to look at the performance of Apple shares over the Cupertino company’s first 25 years as a publicly traded entity (1980 to 2005). How does this compare to Amazon’s stock in the first 25 years of its own existence (1997 to 2022)?

From 1980 to 2005, the AAPL returned 13.3% per year. An initial investment of $1,000 would have grown to $22,700 in 25 years.
From 1997 to 2022, AMZN has returned 31.9% per year. An initial investment of $1,000 would have grown to $1.18 million in 25 years.

Keep in mind that comparisons are usually imperfect. In the above case, Apple’s 1980-2005 period includes three recessions and one disastrous bubble burst – the dot-com crisis of the early 2000s. It also covers the early 1990s, a period when Apple almost went bankruptwhile it excludes the highly successful iPhone years of 2007 and beyond.

AAPL vs. AMZN: Looking Forward

The discussion above is centered on past performance. How about looking forward? Does Apple seem like a better growth stock than Amazon, or is it the other way around? A long debate based on qualitative factors could take place at this stage.

For example: Is Apple better positioned to seize growth opportunities in the consumption of consumer technology devices and services, the metaverse, and autonomous vehicles? Or is Amazon better positioned to expand its global dominance in e-commerce and cloud services?

I may be able to address these questions in a future article. But for now, let me stick to the numbers.

According to Y-Charts, Wall Street currently sees Apple’s EPS (earnings per share) grow a modest 11% annually over the next five years. The fairly slow growth trajectory can be justified by exceptional financial performance over the past three years, which sets a high base.

Amazon, on the other hand, is expected to grow EPS by a far more impressive 31% annually over the next five years. The company has gone through a tough time in this post-pandemic environment, which potentially sets it up for a stronger rebound.

From a valuation perspective, Amazon is more expensive: next year’s P/E of 50x vs. Apple is much more derisked 20x. Given the valuation and EPS growth outlook, AMZN looks much more like a growth stock today, while AAPL may look like a value play.

(Learn more about Apple Maven: Apple’s App Store Drama: Should AAPL Investors Be Worried?)

Ask Twitter

In the Amazon vs. Apple comparison, the former is starting to look more like a growth play, while the latter may appeal more to value-oriented investors due to a weaker P/E and more modest EPS growth projections. Which do you think will perform best in 2023?

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