The ‘Magnificent 7’ tech stocks continue to be popular investments here in the UK. Last week, six of the seven were among the 20 most bought shares on Hargreaves Lansdown. Here, I’m going to compare two of them – Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN). Which is the best tech stock to buy for my portfolio today?
Valuation
Let’s start by comparing valuations.
Apple is the cheaper stock of the two when comparing price-to-earnings (P/E) ratios. At present, Apple’s P/E ratio is 28.7. Meanwhile, Amazon’s is 41.2. So, Apple wins here.
However, valuation is only one piece of the puzzle. With these kinds of tech stocks, there are many other factors to consider.
Growth
One such factor is growth. And here, Amazon is winning right now.
This year, Amazon’s revenue and earnings per share (EPS) are expected to increase 11% and 44%, respectively.
By contrast, for the year ending 30 September 2024, Apple’s revenue and EPS are expected to increase only 2% and 7%, respectively.
It’s worth noting that if we take these EPS growth figures and calculate a price-to-earnings-to-growth (PEG) ratio for the two stocks, Amazon actually looks a lot cheaper than Apple. Its PEG ratio is 0.94 while Apple’s is about four. A PEG ratio under one generally suggests that a stock is cheap.
Taking a longer-term view, I think both companies have a lot of growth potential.
Amazon is likely to see further growth from its e-commerce, digital advertising, and cloud computing businesses, all of which still have long growth runways.
Apple, meanwhile, could see growth from services (such as Apple Pay), new AI-enabled phones, and its Vision Pro headsets or future iterations of these headsets (I imagine they will look a lot different in 10 years).
Given how innovative these companies are, it’s hard to call a winner for the long run.
Share price momentum
Share price momentum is also worth considering.
Here, Amazon also wins. Its share price is in a really strong uptrend right now.
Meanwhile, Apple’s share price has been trending sideways for a while.
I’ll point out that Amazon has been getting a lot of price target upgrades. After its recent results, at least 10 brokers lifted their price targets (with JP Morgan and TD Cowen going to $225). This kind of broker activity can push a company’s share price higher.
The broker activity on Apple was far less bullish. After its recent results, several brokers downgraded their ratings on the stock.
Risk
As for risk levels, it’s hard to know which stock is the riskiest.
Both companies face intense competition from rivals. And both could be impacted by an economic slowdown.
Apple pays a dividend though (and is buying back a ton of shares). It also has a much higher return on capital than Amazon.
So, I’d probably say it’s a little less risky than Amazon.
My view
Putting this all together though, I think Amazon is the winner. Its profits are growing rapidly right now and the stock has a lot of momentum.
I’m likely to add to my holding in the near future.
