Google Vs. Amazon Stock: Which Is The Better Buy

Summary

• Amazon and Google significantly outperformed the broader market over the past 12 months, but are still good buys at current prices.
• Google's headline P/E ratio understates its true earnings power, due to heavy investment in Google Cloud and Other Bets.
• Amazon, particularly the AWS segment, is starting to show impressive earnings power and operating leverage.
• I consider Google the stronger buy because of a lower valuation and less political/anti-trust risk than at Amazon, but am bullish on both names.

Amazon (NASDAQ:AMZN) and Alphabet, Inc. aka Google (NASDAQ:GOOG) (NASDAQ:GOOGL) both performed well in the last year, significantly outpacing the S&P500. Despite their size and trillion dollar plus valuations, both companies are still growing at impressive rates.

As we begin looking ahead to a future without COVID and the associated lockdowns and restrictions as the dominant theme, which one of these two companies is the better buy?

Quick Note on the Methodology

Google and Amazon are two of the most widely followed and analyzed companies on the planet. Amazon has 45 analysts providing estimates for it, Google has 35. Unlike smaller, less followed companies where I believe I can add alpha by seeing things that market doesn't yet appreciate, the likelihood of me doing this for an Amazon or Google is remote. I say this even though I believe many analyst estimates are little more than extrapolation of recent trends and performance.

In that spirit, this comparison is more about my perspective on the valuations and longer macro trends that may impact them, and is less about better refining near term estimates from the dozens of analysts doing this already.

Google Stock Overview

Google now reports operating income for 3 distinct segments

1. Google Services: Search, Youtube, Android, Chrome, Gmail, Google Drive, Google Maps, Google Photos, Google Play.
2. Google Cloud: The 3rd largest cloud service provider, behind Amazon's AWS and Microsoft's (MSFT) Azure.
3. Other Bets: A collection of aspirational business ventures, including
   • Access (Google Fiber)
   • Calico (Biological R&D)
   • CapitalG (Equity Investment Arm)
   • Google Ventures (Venture Capital Arm)
   • Nest (Smart Home)
   • Verily (Health care record startup)
   • Waymo (Autonomous driving)
   • X (Division to solve "hard problems")

The recent Q4 earnings was the first time Google broke out operating income for the Google Cloud segment, giving investors a better ability to value the various components

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.