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Amazon.com (AMZN) has had a rough ride lately. From an October high of $246, it fell to as low as $173 before moving back up to $182.

Despite an $83 billion market cap, investors must believe its best days are ahead of it. Money goes out the door almost as fast as it comes in - over $17 billion in sales for the last quarter alone.

The reason is that while it's mainly a retailer, what it wants to be when it grows up is a cloud infrastructure and device ecosystem company.

  • It sold 3.89 million Kindle Fires in just a few months, and they're mainly content consumption devices, with the content bought from Amazon's cloud.

  • The cloud, meanwhile, is working toward some big contracts, even federal contracts, as its efficacy as an enterprise platform becomes more obvious, and its market leadership in that space continues.

Yes despite all this Morgan Stanley recently downgraded the stock. They see Kindle content sales taking away from the sales of books, CDs and DVDs. And they see those sales further hurt by the success of the iPad. The unexpectedly small number of its $79/year Prime subscriptions may also be a factor.

Which brings us to Apple (AAPL). Apple long ago ran out of new places to invest its cash. It's in its golden era, going from strength to strength, and despite rising past $500/share that's still an adjusted PE of 14.4. Amazon bears can't believe their company has 10 times the growth potential of Apple, which brought almost half its $46 billion in sales last quarter to the gross profit line, netting over $13 billion. Apple bulls will tell you they have the cash to buy-out Amazon. (Amazon's market cap is $83 billion, Apple's cash horde is estimated to be over $100 billion.)

The difference between Amazon's future and that of Apple may lie overseas. Apples are selling great in China, where the working class makes what the ruling class takes. And Apple's confrontation with Chinese law has made it step on Amazon there. But Amazon also has an Indian growth strategy, prying open the market along with local partners. And Amazon sells more than technology.

Amazon's real target in terms of sales isn't Apple at all. It's WalMart (WMT). WalMart is nearly 10 times than Amazon by sales, but just 2 1/2 times bigger by market cap, and by that measure WalMart is less than half the size of Apple.

Seen through this prism it's not Amazon that's overvalued, but Apple. And in fact the earnings multiples of WMT and AAPL are nearly identical.

When you buy shares today you're buying tomorrow, not yesterday. Both Apple and Amazon grew equally well on the top line last quarter, 61% in Apple's case and 62% in Amazon's.

What Apple bulls will tell you is that cloud success is based on demand, and despite criticism Apple's iCloud now has 100 million users, 20-30 times more than the number of Amazon Prime users. They will say that cloud success is all about the ecosystem, that Apple's is stronger, and that it is, as a result, a much better investment.

But Amazon keeps trying things. It's becoming a book publisher as well as a movie producer, it's opening brick-and-mortar stores, and has even turned the need to charge sales tax into a profit-center, by doing it for other e-merchants. Its brand reputation is now right up there with Google's, Coca-Cola's and Apple's own.

So, which company has a better future? Recent price action indicates investors say Apple. But for the longer term my money is on Amazon, although I don't think there's a loser here either way.

Source: Long Run View On Amazon And Apple