Apple Inc. (AAPL)vs Amazon.com, Inc. (AMZN)

Quick verdict

Apple and Amazon are close in scale, $4.49 trillion against $2.83 trillion, and far apart in how they earn. Apple converts 33.17% of revenue into operating profit; Amazon converts 12.08%. But Amazon trades at 20.85 times trailing earnings against Apple's 34.92, and grows revenue at 12.38% against 6.43%. Our framework scores Amazon 3.5 and Apple 2.5, awarding Amazon valuation and the balance sheet, Apple quality and income, with growth and momentum too close to separate. The trade is explicit: Apple offers superior margins and returns on capital at a full price, Amazon offers faster growth and a cheaper multiple in exchange for accepting thinner profitability and heavier reinvestment.

2-year relative performance

At-a-glance comparison

Business model and revenue mix

Amazon is classified under Consumer Cyclical and Specialty Retail, Apple under Technology and Consumer Electronics, and the sector labels understate how differently the two operate. Retail and logistics carry enormous fixed costs, which is why Amazon's 50.77% gross margin, slightly above Apple's 48.65%, collapses to a 12.08% operating margin against Apple's 33.17%. The distance between gross and operating margin is where fulfilment, infrastructure and content spending live. Apple's cost structure is inverted: it pays for components and then captures most of the remaining value. Amazon's beta of 1.45 against Apple's 1.09 reflects the market treating a lower-margin, higher-reinvestment business as the more cyclical of the two, and its 55.73% five-year drawdown against Apple's 33.43% bears that out.

Valuation

Amazon is the cheaper stock across the multiples our provider reports. It trades at 20.85 times trailing earnings against Apple's 34.92, 3.64 times sales against 9.63, 5.12 times book against 41.81, and 11.69 times EV/EBITDA against 26.93. Adjusted for growth the gap widens rather than narrows: Amazon's PEG is 0.24 against Apple's 1.07. Apple's counter-argument is cash conversion. Its free-cash-flow yield is 3.04% while Amazon's is -0.41%, meaning Amazon's capital spending currently exceeds the cash its operations throw off. That single figure explains much of the valuation discount, and whether it represents temporary investment or a permanent feature of the business is the central question for a buyer.

Growth profile

Amazon grows faster on both lines, though our framework scores the factor as too close to call once quality is weighed alongside it. Revenue has compounded at 12.38% over three years against Apple's 6.43%, and earnings per share at 28.8% against 22.59%. The earnings gap is narrower than the revenue gap, which tells you Apple is converting slower top-line growth into nearly comparable bottom-line growth through margin and buybacks. Amazon's advantage is that its growth is coming from revenue expansion, which is more durable than share-count reduction. Apple's 6.43% remains the figure that has to justify a 34.92 multiple, and on a straight growth-versus-price comparison Amazon is the better-supported valuation.

Profitability and quality

Apple takes this factor decisively. Its operating margin of 33.17% is nearly three times Amazon's 12.08%, and its return on invested capital of 51.87% is more than six times Amazon's 8.48%. The ROIC comparison matters most here: above roughly 15% is generally taken as evidence of a durable moat, and Amazon sits well below that line while Apple sits far above it. Return on equity is 137.18% against 30.5%, though Apple's figure is distorted upward by a book equity base that buybacks have reduced almost to nothing. Amazon's 30.5% ROE is arguably the more impressive number in operational terms, but it is earned on a business that reinvests almost everything it makes.

Balance-sheet risk

Amazon has the safer balance sheet, though neither company is under any real strain. Amazon carries net debt at 0.57 times EBITDA against Apple's 0.27, so on leverage Apple is actually the lighter of the two. Where Amazon pulls ahead is near-term liquidity: its current ratio of 1.03 narrowly exceeds Apple's 1.00, and interest cover runs at 28.13 times. These are fine distinctions between two companies that are both comfortably financed. The more meaningful observation is that Apple's balance sheet is a deliberate treasury position, while Amazon's reflects a business actively deploying capital into warehouses and data centres. Lower leverage gives either company room to invest through a downturn without diluting shareholders.

Price performance and shareholder returns

Amazon has been the better holding over three years, Apple over one. Amazon annualised 23.97% over three years against Apple's 19.74%, but returned 16.96% over the past year against Apple's 31.11%. Year to date Amazon leads narrowly, 15.96% against 12.89%. Apple has been the steadier of the two, with a five-year maximum drawdown of 33.43% against Amazon's 55.73%. On income the difference is absolute rather than one of degree: Amazon pays no dividend at all, while Apple yields 0.35% on a 12.13% payout ratio. Neither is an income stock, but only one of them returns any cash to shareholders through dividends. Past performance never guarantees future results.

Which stock fits which investor

Value investors should prefer Amazon, cheaper on every multiple reported and with a PEG of 0.24 against 1.07. Income investors have only one option, and it is a token one: Apple's 0.35% yield against Amazon's nothing. Investors who prize quality at a reasonable price will favour Apple, whose 51.87% return on invested capital is in a different class from Amazon's 8.48%. Growth investors get no clear steer from our framework, since Amazon's faster expansion is offset by Apple's superior conversion of that growth into profit. The decision reduces to whether you believe Amazon's negative free-cash-flow yield reflects investment that will eventually earn a return, or a business that structurally consumes more capital than Apple's.

• Value: AMZN
• Growth: AMZN
• Income: AAPL
• Quality: AAPL

Frequently asked questions

Is Apple or Amazon the better buy right now?

Amazon scores 3.5 on our six-factor framework and Apple 2.5. Amazon wins valuation and the balance sheet, Apple wins quality and income, and growth and momentum are too close to call. Amazon is the cheaper, faster-growing business; Apple is the more profitable one.

Which stock is cheaper, AAPL or AMZN?

Amazon, on every multiple. It trades at 20.85 times trailing earnings against Apple's 34.92, 3.64 times sales against 9.63, and 11.69 times EV/EBITDA against 26.93. Its PEG of 0.24 against Apple's 1.07 widens the gap once growth is factored in.

Why is Amazon's operating margin so much lower than Apple's?

Amazon's 12.08% operating margin against Apple's 33.17% reflects the cost of retail and logistics. Their gross margins are similar, 50.77% against 48.65%, so the difference comes almost entirely from fulfilment, infrastructure and content spending between gross and operating profit.

Does Amazon pay a dividend?

No. Amazon's dividend yield is 0% and it retains all earnings for reinvestment. Apple pays 0.35% on a 12.13% payout ratio. Neither suits an income mandate, but Apple at least returns some cash through dividends.

What does Amazon's negative free-cash-flow yield mean?

Amazon's free-cash-flow yield of -0.41% means its capital spending currently exceeds the cash generated by operations. Apple's is positive at 3.04%. This gap explains much of Amazon's lower valuation multiple and is the key judgement a buyer has to make.

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