At this advanced stage of the bull cycle in equity markets, picking the right candidate for your growth portfolio isn’t an easy task.
After having a great run since the market’s crash in March last year, mega technology stocks seem to be taking a break as the global economy reopens and the pandemic-driven surge in demand shows signs of peaking.
Below we take a look at Amazon.com (NASDAQ:AMZN) and Apple (NASDAQ:AAPL —two companies with market caps of more than $1 trillion—to understand which stock is better positioned to outperform once the dust settles and the COVID-19 blight is contained.
Amazon’s Winning Streak Continues
After surging more than 70% last year, Amazon.com’s shares have taken a break this year. Against the tech-heavy NASDAQ’s gain of about 10%, Amazon stock is up just 3%. It closed on Monday at $3,383.87.
But despite this lackluster performance this year, analysts are generally quite bullish on this e-commerce powerhouse’s growth prospects as they believe the company’s sales momentum will continue through the reopening.
After posting record sales in the first-quarter of this year, the Seattle-based company is projecting to report sales between $110 billion and $116 billion for Q2, better than Wall Street forecasts, with its cloud business remaining a top performer.
Several Wall Street analysts have recently raised their price targets on Amazon, citing a favorable environment for its business units. JPMorgan, which has an overweight rating on the stock, raised its price target to $4,600 from $4,400.
According to its recent note:
“We believe Amazon is well positioned as the market leader in e-commerce and public cloud, where the secular shifts remain early—U.S. e-commerce represents ~20% of adjusted retail sales, and we estimate ~15% of workloads are in the cloud today.”
The average 12-month price target of 31 analysts is $4,295, representing a 28% upside potential above the current share price, according to TipRanks data.
Apple’s 5G Strength
Just like Amazon, Apple continues to show strong growth in all of its product categories. It recorded a 54% jump in sales for the latest quarter and a 110% expansion in its net income. Every single product line recorded double-digit growth, with iPhone sales surging 65% year-over-year, Mac sales climbing 70%, and iPad sales posting about a 80% gain.
Despite the iPhone-maker’s excellent track record of rewarding long-term investors, some analysts are warning that Apple shares have a tough road ahead as the COVID-driven boom of buying the latest hardware cools.
As employees return to physical offices after the accelerating vaccine drive in the developed world, the work-from-home demand for Apple’s hardware—including iPads and Mac computers—may also decline. In addition, the semiconductor industry’s rising chip shortages could become a bigger problem for the company’s future production volumes.
But, if you’re a long-term investor, these short-term headwinds provide an opportunity to accumulate Apple shares. After experiencing a sluggish growth period for its flagship iPhones for many years, Apple is on the verge of another super growth cycle, fueled by its newer 5G-enabled phone models.
The arrival of the iPhone 12 will trigger a record boom in sales similar to when the first large-screen iPhone was introduced in 2014, as millions of existing users will likely upgrade aging handsets.
The latest iPhone has the capability of accessing the next-generation cellular network, dubbed 5G, which promises faster internet speeds. In the last quarter, the new iPhone helped sales rise 57% in China, which has a more developed 5G network.
Apple isn’t just about iPhones, though. Apple's services division, which includes the App Store, iTunes, Apple Music and iCloud, is showing strong growth, helping to diversify the company’s revenue base away from gadgets.
Last year, revenue from this division surged to $54 billion, more than double the amount it generated in 2016. If the pace of this growth continues, revenue from its services business could exceed $100 billion by 2024, according to Evercore ISI estimates.
For these reasons, the majority of analysts see Apple stock as a good buy. The average 12-month price target of 27 analysts is $157.88, representing a 22% upside potential above the current share price.
Bottom Line
Amazon and Apple are both among the most resilient tech giants that are best positioned to grow in the post-pandemic environment. Apple’s growing services business and the new 5G growth cycle will fuel sales, while Amazon’s dominant position in e-commerce, coupled with its cloud business, provide ample opportunities for increased sales.
These growth drivers, in our view, make both stocks an attractive long-term buy.