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AAPL or AMZN: Which Mag 7 Stock Should You Buy Before Earnings?
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Apple (AAPL - Free Report) and Amazon.com (AMZN - Free Report) , two prominent members of the Magnificent 7, are set to report their respective quarterly results on Aug 1.
Investors are eagerly awaiting results from these two industry stalwarts to get a glimpse of the growing impact of AI, including Generative AI (GenAI), on top-line as well as bottom-line growth.
Apple has been playing catch-up in the AI space compared with Alphabet (GOOGL - Free Report) , Microsoft (MSFT - Free Report) and Amazon, its peers in the “magnificent seven” group that also includes Tesla, Meta Platforms and NVIDIA.
The Magnificent 7 has been benefiting from the massive proliferation of AI. Demand for AI is escalating, and that has increased the need for data center capacity expansion. The advent of GenAI has further attracted investments.
Gartner estimates spending on AI software to witness a CAGR of 19.1% between 2022 and 2027 to hit $297 billion in 2027. GenAI software spending is expected to surge from 8% in 2023 to 35% by 2027. IDC expects worldwide revenues for AI platforms software to witness a CAGR of 40.6% over the 2023-2028 timeframe. These projections reflect strong growth opportunities for the Magnificent 7.
Let’s delve deep to find out what Apple and Amazon are expected to report this earnings season.
Apple and Amazon: Impressive Earnings Surprise History
AAPL’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the earnings surprise being 4.14%, on average. Meanwhile, Amazon’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 48.17%.
Apple expects third-quarter fiscal 2024 revenues to grow low single digits year over year. The Zacks Consensus Estimate for fiscal third-quarter revenues is currently pegged at $84.02 billion, indicating growth of 2.71% year over year.
The consensus mark for AAPL’s fiscal third-quarter earnings is currently pegged at $1.34 per share, up by a penny over the past 30 days. The figure indicates a 6.35% increase from the figure reported in the year-ago quarter.
Amazon expects second-quarter 2024 net sales between $144 billion and $149 billion, indicating 7-11% growth on a year-over-year basis.
The Zacks Consensus Estimate for AMZN’s net sales is pegged at $148.63 billion, indicating growth of 10.6% from the prior-year quarter’s reported figure.
The consensus mark for AMZN’s second-quarter earnings is pegged at $1.03 per share, up by a penny over the past 30 days, which indicates a jump of 63.49% from the year-ago quarter.
Year to date, Apple shares have gained 15.4% year to date, outperforming only Microsoft and Tesla. Amazon has returned 21.7% over the same timeframe, outperforming AAPL but lagging NVDA, META and GOOGL.
YTD Performance
Image Source: Zacks Investment Research
Moreover, AAPL stock is not so cheap, as the Value Style Score of D suggests a stretched valuation at this moment. In comparison, Amazon has a Value Style Score of B suggesting the shares are undervalued currently.
In terms of the forward 12-month Price/Sales ratio, Apple is trading at 8.14X, higher than its median of 7.17X, the Zacks Computer & Technology sector’s 6.18X and Amazon’s 2.78X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Apple’s Fiscal Q3 to Suffer From Weak China Sales
Apple’s fortunes are heavily reliant on the iPhone, which is by far its biggest revenue contributor. The device accounted for 50.6% of net sales in the second quarter of fiscal 2024, wherein sales decreased 10.5% year over year to $46 billion.
This Zacks Rank #2 (Buy) stock is expected to have struggled in China amid significant competition from domestic handset makers. Per IDC, China’s smartphone shipments grew 8.9% year over year to 71.6 million units in the second quarter of calendar 2024, driven by robust performance from Vivo, Huawei and Xiaomi. Apple is expected to have witnessed a 3.1% year-over-year decline.
However, it is benefiting from increasing customer engagement in the services segment. The expanding content portfolio of Apple TV+ and Apple Arcade helped drive subscriber growth. (Read More: Should Apple Stock be in Your Portfolio Pre-Q3 Earnings?)
Amazon’s Q2 Earnings to Ride on Prime Momentum
Amazon is benefiting from solid Prime momentum, owing to ultrafast delivery services and a strong content portfolio. Strengthening relationships with third-party sellers is a positive.
The strong adoption rate of AWS is aiding AMZN’s cloud dominance. Improving Alexa skills along with robust smart home product offerings are tailwinds. The robust advertising business is also contributing well. Its strong global presence and solid momentum among small and medium businesses remain a plus. (Read More: Is Amazon Stock Worth Buying Ahead of Q2 Earnings?)
Conclusion
Apple and Amazon are both expected to benefit from the strong proliferation of AI in the long haul.
However, ahead of the earnings release, we believe Amazon stock is a better buy, given its current undervaluation, which presents an opportunity for investors to jump in the stock.
Image: Bigstock
AAPL or AMZN: Which Mag 7 Stock Should You Buy Before Earnings?
Apple (AAPL - Free Report) and Amazon.com (AMZN - Free Report) , two prominent members of the Magnificent 7, are set to report their respective quarterly results on Aug 1.
Investors are eagerly awaiting results from these two industry stalwarts to get a glimpse of the growing impact of AI, including Generative AI (GenAI), on top-line as well as bottom-line growth.
Apple has been playing catch-up in the AI space compared with Alphabet (GOOGL - Free Report) , Microsoft (MSFT - Free Report) and Amazon, its peers in the “magnificent seven” group that also includes Tesla, Meta Platforms and NVIDIA.
The Magnificent 7 has been benefiting from the massive proliferation of AI. Demand for AI is escalating, and that has increased the need for data center capacity expansion. The advent of GenAI has further attracted investments.
Gartner estimates spending on AI software to witness a CAGR of 19.1% between 2022 and 2027 to hit $297 billion in 2027. GenAI software spending is expected to surge from 8% in 2023 to 35% by 2027. IDC expects worldwide revenues for AI platforms software to witness a CAGR of 40.6% over the 2023-2028 timeframe. These projections reflect strong growth opportunities for the Magnificent 7.
Let’s delve deep to find out what Apple and Amazon are expected to report this earnings season.
Apple and Amazon: Impressive Earnings Surprise History
AAPL’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the earnings surprise being 4.14%, on average. Meanwhile, Amazon’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 48.17%.
Apple expects third-quarter fiscal 2024 revenues to grow low single digits year over year. The Zacks Consensus Estimate for fiscal third-quarter revenues is currently pegged at $84.02 billion, indicating growth of 2.71% year over year.
The consensus mark for AAPL’s fiscal third-quarter earnings is currently pegged at $1.34 per share, up by a penny over the past 30 days. The figure indicates a 6.35% increase from the figure reported in the year-ago quarter.
Apple Inc. Price and EPS Surprise
Apple Inc. price-eps-surprise | Apple Inc. Quote
Amazon expects second-quarter 2024 net sales between $144 billion and $149 billion, indicating 7-11% growth on a year-over-year basis.
The Zacks Consensus Estimate for AMZN’s net sales is pegged at $148.63 billion, indicating growth of 10.6% from the prior-year quarter’s reported figure.
The consensus mark for AMZN’s second-quarter earnings is pegged at $1.03 per share, up by a penny over the past 30 days, which indicates a jump of 63.49% from the year-ago quarter.
Amazon.com, Inc. Price and EPS Surprise
Amazon.com, Inc. price-eps-surprise | Amazon.com, Inc. Quote
AAPL Underperforms AMZN Stock YTD
Year to date, Apple shares have gained 15.4% year to date, outperforming only Microsoft and Tesla. Amazon has returned 21.7% over the same timeframe, outperforming AAPL but lagging NVDA, META and GOOGL.
YTD Performance
Image Source: Zacks Investment Research
Moreover, AAPL stock is not so cheap, as the Value Style Score of D suggests a stretched valuation at this moment. In comparison, Amazon has a Value Style Score of B suggesting the shares are undervalued currently.
In terms of the forward 12-month Price/Sales ratio, Apple is trading at 8.14X, higher than its median of 7.17X, the Zacks Computer & Technology sector’s 6.18X and Amazon’s 2.78X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Apple’s Fiscal Q3 to Suffer From Weak China Sales
Apple’s fortunes are heavily reliant on the iPhone, which is by far its biggest revenue contributor. The device accounted for 50.6% of net sales in the second quarter of fiscal 2024, wherein sales decreased 10.5% year over year to $46 billion.
This Zacks Rank #2 (Buy) stock is expected to have struggled in China amid significant competition from domestic handset makers. Per IDC, China’s smartphone shipments grew 8.9% year over year to 71.6 million units in the second quarter of calendar 2024, driven by robust performance from Vivo, Huawei and Xiaomi. Apple is expected to have witnessed a 3.1% year-over-year decline.
However, it is benefiting from increasing customer engagement in the services segment. The expanding content portfolio of Apple TV+ and Apple Arcade helped drive subscriber growth. (Read More: Should Apple Stock be in Your Portfolio Pre-Q3 Earnings?)
Amazon’s Q2 Earnings to Ride on Prime Momentum
Amazon is benefiting from solid Prime momentum, owing to ultrafast delivery services and a strong content portfolio. Strengthening relationships with third-party sellers is a positive.
The strong adoption rate of AWS is aiding AMZN’s cloud dominance. Improving Alexa skills along with robust smart home product offerings are tailwinds. The robust advertising business is also contributing well. Its strong global presence and solid momentum among small and medium businesses remain a plus. (Read More: Is Amazon Stock Worth Buying Ahead of Q2 Earnings?)
Conclusion
Apple and Amazon are both expected to benefit from the strong proliferation of AI in the long haul.
However, ahead of the earnings release, we believe Amazon stock is a better buy, given its current undervaluation, which presents an opportunity for investors to jump in the stock.
Amazon has a Growth Style Score of A and a Zacks Rank #2, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.