Are Amazon and Alphabet Considered Top Stock Picks Right Now?

Tech Giants Present New Investment Opportunities After Recent Declines

Several leading technology companies are showing renewed potential, particularly following a recent dip in their stock prices. Among those drawing attention from investors are Alphabet (NASDAQ: GOOG, GOOGL) and Amazon (NASDAQ: AMZN). Alphabet’s shares have dropped about 10% from their peak, while Amazon has seen a decline of roughly 16%.

These price drops could offer attractive entry points into two of the world’s most influential companies. But does this make them smart investments at this moment?

Image source: Getty Images.

Cloud Computing Fuels Growth for Amazon and Alphabet

Amazon and Alphabet share more similarities than many realize. While each is best known for its core business—Amazon for e-commerce and Alphabet for its Google ecosystem—both have rapidly expanding cloud computing divisions.

Amazon’s retail platform is a household name in the United States, with Prime membership becoming a fixture in many homes. Alphabet, as Google’s parent company, also oversees Android, YouTube, and a suite of other products, with advertising remaining its primary revenue driver.

Despite their well-known main businesses, the most compelling reason to consider investing in either company is their cloud computing operations, which are growing even faster than their core segments.

Amazon Web Services (AWS) plays a pivotal role in Amazon’s profitability. In the fourth quarter, AWS accounted for half of Amazon’s operating income. Even in the third quarter, which is less lucrative for retailers, AWS contributed 66% of operating profits. AWS is not only the company’s main profit engine but also its fastest-growing division, expanding by 24% year-over-year in Q4—the strongest performance in over three years. The surge in demand for artificial intelligence is clearly accelerating AWS’s growth.

Google Cloud, while not as central to Alphabet’s overall business as AWS is to Amazon, is still posting remarkable results. In the fourth quarter, Google Cloud’s revenue soared 48% year-over-year, with an impressive 30% operating margin. As Alphabet continues to ramp up its AI capabilities, this rapid growth is likely to persist well into the future.

Are These Cloud Leaders Worth Buying Now?

Both Amazon and Alphabet have robust cloud businesses that complement their main operations. But does that make them good buys at current prices?

Valuation: Amazon and Alphabet Trade at a Premium

Currently, Amazon and Alphabet are valued similarly in the market.

The S&P 500 (SNPINDEX: ^GSPC) is trading at about 21.7 times projected earnings, while Amazon and Alphabet command even higher multiples. For comparison, Microsoft and Nvidia have forward price-to-earnings ratios of 24.2 and 22.6, respectively. Nvidia’s rapid growth outpaces both Amazon and Alphabet, and Microsoft’s cloud business is thriving as well.

At this time, Microsoft and Nvidia may offer more compelling investment opportunities. However, that doesn’t mean investors should rush to sell their Amazon or Alphabet shares—these companies continue to perform as expected, but there may be better value elsewhere in the market right now.

Is Now the Right Time to Invest in Alphabet?

Before making a decision to buy Alphabet stock, consider the following:

For example, when Netflix was recommended on December 17, 2004, a $1,000 investment would now be worth $508,607. Similarly, a $1,000 investment in Nvidia after its April 15, 2005 recommendation would have grown to $1,122,746.

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