Better buy: vs. Google

These tech titans are two of the most valuable companies in the world.

| More on:
tech shares represented by woman holding hand out to touch icons on digital screen

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on All figures quoted in US dollars unless otherwise stated. Inc (NASDAQ: AMZN) and Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) are two of the largest and most successful companies in the world. Google has become synonymous with search, and Amazon's marketplace is the epitome of consumer convenience. And both of these titans have outperformed the S&P 500 Index (SP: .INX) over the last one, three, five, and 10 years -- though Amazon's stock soared 815% over the last decade, far outpacing Alphabet's 235% gain. Which stock is the better investment today?

E-commerce and digital advertising

Alphabet's primary source of revenue comes from its Google business, specifically the digital advertising segment. This is driven by Google's utter dominance among search engines -- Google's market share has consistently been near 90% over the last decade. This has allowed the company to collect a tremendous amount of data, making its ad buying and selling tools immensely popular among marketers. As a result, Google consistently captures more than 30% of global digital ad spend.

By comparison, Amazon generates the majority of its revenue through its e-commerce business. The company commands roughly 39% of the e-commerce market in the U.S., while Walmart is the next-closest competitor with a mere 5% market share. While this business comes with much lower margins than Google's ad business, Amazon's highly profitable cloud computing business helps pick up the slack, giving the company a tremendous advantage over other online retailers.

Additionally, Amazon is aggressively moving into digital advertising, and the company appears to be taking market share away from Google. Investors should note that Amazon has many of the same advantages as leaders like Google and Facebook, including troves of consumer data, tools to help marketers buy ads and publishers monetize ad space, and various content platforms like Fire TV and where it can sell its own ad inventory. As a result, Amazon's share of digital ad spend in the US jumped 2% in 2020, while Google's fell 2%. 

Company 2019 Market Share 2020 Market Share
Google 31.6% 29.4%
Amazon 7.8% 9.5%

Data source: eMarketer.

Google is still the leader by a long shot, but Amazon has a history of disrupting the status quo. The company's online marketplace and streaming platforms (Fire TV and Twitch) are popular content hubs, and could be powerful growth drivers for Amazon's ad business in the coming years.

The cloud business

According to research firm Gartner, both Amazon Web Services (AWS) and Google Cloud Platform (GCP) are market-leading providers of cloud infrastructure and platform services. But while both companies offer storage, computing, databases, analytics, and other tools, Amazon launched its cloud computing service two years ahead of Google, and it has never given up that lead. Today, AWS still has a more comprehensive offering and has achieved wider adoption. In fact, AWS is the world's leading cloud services provider, taking 32% market share in the third quarter of 2020 compared to Google Cloud's 7% market share. As you might expect, this means AWS generates much more revenue, though Google Cloud is growing faster.

Company First 9 Months of 2019 First 9 Months of 2020 Change
GCP revenue $6.3 billion $9.2 billion 46%
AWS revenue $25.1 billion $32.6 billion 30%

Data source: Alphabet and Amazon SEC filings. 

The future

Amazon could easily make a strong move into gaming and e-sports. Amazon Games is the company's in-house game development studio, and with AWS for content delivery and Twitch as a way to engage gamers and monetize e-sports, it's not hard to imagine Amazon as a serious competitor in this space.

What's more, if Amazon does aggressively pursue this multi-billion dollar market, the company would likely be more profitable than other gaming companies -- that's because Amazon already owns the infrastructure and tools needed to build  games and host content, whereas 90% of the world's largest public game companies actually rely on AWS for these services.

In other words, this could be a very high margin business for Amazon. To keep track of the company's foray into gaming, investors should pay attention to Amazon Games' upcoming release of New World in May 2021. 

Alphabet, on the other hand, has its "other bets" business, which includes Waymo, the company's self-driving car company. According to Swiss investment bank UBS, the autonomous vehicle market could be worth $2.8 trillion by 2030, and Waymo is well positioned to take a good chunk. The company's autonomous vehicles have already logged over 20 million real world miles, far outpacing the competition, and Waymo recently started offering ride hailing services to the general public in Phoenix. If this moonshot pays off, it could create another enormous revenue stream for Alphabet, perhaps even surpassing that of its Google business.

The verdict

Investors should pay attention to both companies' ability to sustain revenue growth over the long run. Together, these titans are worth over $3 trillion, and growth tends to slow as businesses mature.

However, Alphabet and Amazon are both innovative, well-managed companies with deep pockets and bright futures -- I don't think investors can go wrong with either one. That being said, I think Amazon has an edge here. The company has two different market-leading businesses, which is an incredible accomplishment. Moreover, Amazon has a larger addressable market , and the company is growing faster than Alphabet as a whole. 

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Trevor Jennewine owns shares of Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Facebook and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Facebook. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

A woman is excited as she reads the latest rumour on her phone.
Broker Notes

Goldman Sachs says this US stock is replacing Tesla in the Magnificent Seven

And no, it's not a tech company. It's in the healthcare sector.

Read more »

A man looking at his laptop and thinking.
Share Gainers

Should I buy Nvidia stock as an Australian investor?

Many Aussies are thinking of jumping on the bandwagon, but they need to think about these issues first.

Read more »

Digital rocket on a laptop.
Broker Notes

Is the Nvidia share price on course to reach US$1,400?

You betcha, says one analyst.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Could Nvidia become the most valuable stock on earth?

Can anything stop the Nvidia stock price?

Read more »

A group of young ASX investors sitting around a laptop with an older lady standing behind them explaining how investing works.
International Stock News

What can ASX investors learn from Warren Buffett's latest buys and sells?

We've just found out what Buffett's been buying and selling recently.

Read more »

electric vehicle such as Tesla being charged at charging station
International Stock News

Why Tesla stock tanked in January

Will the electric vehicle leader see earnings decline once again in 2024?

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
International Stock News

Will Nvidia stock be worth more than Microsoft by 2030?

The graphics giant has been growing at a much faster pace than Microsoft, but can it sustain that momentum?

Read more »

Man with hands in the middle of two items with money bags on them.
International Stock News

Stock-split watch: Is Tesla next?

Stock splits are fun. But how much substance there is in Tesla splitting its stock is debatable.

Read more »