Don’t underestimate the importance of diversification
One thing Amazon and Microsoft have in common, and why I’m high on both companies for the long term, is their diversified businesses. Amazon is a household name because of its e-commerce business, but it’s far from its only work. It has cloud provider Amazon Web Services (AWS), Prime Video, advertising, Whole Foods, and even a pharmacy arm.
Microsoft is known for its Office software (Excel, Word, Teams, Outlook, etc.), but it also has its own cloud platform (Azure), its Windows operating system, hardware, Xbox, LinkedIn, advertising, and GitHub.
Having a foundational business — Amazon with e-commerce and Microsoft with software — is important for reliable cash flow and brand recognition, no doubt. However, multiple businesses and revenue streams can help sustain growth, even when a particular economic cycle isn’t in your favor.
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NASDAQ: AMZN
Amazon
Today’s Change
(-0.49%) $-1.28
Current Price
$260.79
Key Data Points
Market Cap
$2.8TMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.
Day’s Range
$260.28 – $263.89
52wk Range
$196.00 – $287.20
Volume
4.9M
Avg Vol
49.7M
Gross Margin
50.77%
Cloud’s importance will only increase
Both Amazon and Microsoft are known for other businesses, but there’s a strong case that cloud computing is the most important business for both companies. AWS and Azure are the world’s two largest cloud platforms, with market s of 28% and 21%, respectively, as of the end of the first quarter.
Although e-commerce accounted for 79% of Amazon’s $200.6 billion in revenue in the second quarter, AWS accounted for 61% of its operating income (profit from its core operations) while accounting for only 21% of its revenue. E-commerce generates the revenue needed to fund investments and expansion; AWS generates the profits.
Cloud remains Microsoft’s main growth driver. In its most recent quarter, Microsoft’s “Intelligent Cloud” segment (which includes Azure) brought in $39.3 billion in revenue, up 32% year over year. In Microsoft’s latest fiscal year (ended June 30), Azure achieved its first $100 billion year, and the Microsoft Cloud segment as a whole brought in $214 billion. For perspective, Meta Platforms as a whole has generated just over $228 billion over its past four quarters.
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NASDAQ: MSFT
Microsoft
Today’s Change
(-0.05%) $-0.24
Current Price
$487.07
Key Data Points
Market Cap
$3.6TMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.
Day’s Range
$484.30 – $490.15
52wk Range
$349.20 – $553.72
Volume
4.3M
Avg Vol
39.5M
Gross Margin
67.94%
Dividend Yield
0.75%
Cloud was already a growing industry, but its importance will only increase as artificial intelligence advances and the world increasingly moves to cloud-native operations.
Both Amazon and Microsoft are spending hundreds of billions building out their data center and AI infrastructure, and although it will be a while before we get a true sense of the return on investment, I expect them to command the top two spots in the cloud world for the foreseeable future.
Why I wouldn’t touch Tesla’s stock right now
It hasn’t quite been Tesla’s year, with the stock down over 16% year-to-date as of Aug. 21. It’s the worst-performing “Magnificent Seven” stock this year, and I would be surprised if it didn’t finish the year that way.
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NASDAQ: TSLA
Tesla
Today’s Change
(1.07%) $3.74
Current Price
$352.69
Key Data Points
Market Cap
$1.4TMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.
Day’s Range
$349.20 – $353.50
52wk Range
$297.38 – $498.83
Volume
7.8M
Avg Vol
42M
Gross Margin
18.85%
Tesla has some positives, but one major reason I’m avoiding the stock is its valuation relative to the execution timeline for long-shot projects robotaxis and humanoid robots. At the time of writing, Tesla is trading at over 205 times its projected earnings for the next 12 months.
That’s hard to justify for any company, but especially one burning through cash and a stalling core business (vehicle sales). Right now, I’d rather invest in a tech company with a thriving core business, such as Amazon or Microsoft.
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About the Author
Stefon Walters is a contributing Motley Fool stock market analyst covering publicly traded companies across technology, consumer goods, and financials, as well as retirement planning. Stefon is a published author and has more than a decade of experience teaching financial literacy. He holds a bachelor’s degree in economics from the University of North Carolina at Chapel Hill.
Stocks Mentioned
Amazon
NASDAQ: AMZN
$260.52
(-0.59%)-$1.55
Motley Fool Stock Advisor’s Latest Pick
—% Avg Return
Microsoft
NASDAQ: MSFT
$486.98
(-0.07%)-$0.33
Tesla
NASDAQ: TSLA
$352.61
(+1.05%)+$3.66
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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