There’s been a recent trend among billionaires — one that has quite a few investors perking up their ears. Billionaires have been selling off Amazon (NASDAQ:AMZN), taking advantage of some highs. Meanwhile, other billionaires are picking up Shopify (TSX:SHOP) for future growth. Amazon stock, despite its massive scale, faces challenges in maintaining its breakneck growth. Meanwhile, Shopify has captured the attention of investors looking for robust growth in the e-commerce ecosystem. So, let’s look at why one might be a better buy than the other.
The earnings
Amazon stock reported quarterly revenue of US$620.13 billion for the trailing 12 months, showing 11% year-over-year growth. While impressive, it falls short of the company’s historical highs. Investors are concerned about Amazon stock’s margins, which, though recovering, remain vulnerable due to rising operational costs. The company’s profit margin of 8.04% reflects this strain. While its Amazon Web Services (AWS) segment continues to dominate cloud computing, competition from other software giants tempered expectations for its long-term growth in this space.
Shopify, however, has been riding a wave of optimism with a 26.1% year-over-year revenue growth, reporting US$8.21 billion in revenue for the trailing 12 months. Its operating margin of 15.77% and profit margin of 16.84% highlight its ability to grow efficiently. Shopify’s focus on enabling small- and medium-sized businesses (SMBs) to succeed in e-commerce has resonated in a market where entrepreneurs are seeking versatile, user-friendly tools.
Valuation
Amazon stock’s performance, while strong, has seen a cooling-off period. The trailing price-to-earnings (P/E) of 46.53 is a far cry from its peak, suggesting investor sentiment is shifting toward more growth-centric stocks. Meanwhile, Shopify’s forward P/E of 69.44 indicates strong confidence in its future earnings potential. As Shopify continues to expand its ecosystem with innovative solutions like artificial intelligence (AI)-driven shopping features and payment gateways, investors see it as a bet on the future of retail.
Another factor influencing this trend is the scale of each company. Amazon stock’s sheer size at a commanding US$2.29 trillion market cap limits its ability to deliver the kind of exponential growth that excites investors. Shopify, with a market cap of $188.41 billion, is positioned to scale significantly as it continues its international expansion and partnerships, making it more attractive to growth-focused portfolios.
Shopify’s balance sheet also plays a role. With a current ratio of 7.10, the company boasts a strong liquidity position compared to Amazon’s 1.09. This financial health provides Shopify with the flexibility to invest in its platform and capture market share in a competitive industry. Another draw for investors is Shopify’s lack of significant debt. With a debt-to-equity ratio of 11.28%, it contrasts sharply with Amazon’s 61.18%, highlighting Shopify’s ability to grow without being burdened by heavy financial obligations. This positions Shopify as a leaner, more agile company in the eyes of investors.
Foolish takeaway
Looking forward, Shopify’s focus on artificial intelligence and automation sets it apart as a tech-forward e-commerce leader. Its innovative approach to integrating AI-driven features for merchants and customers alike is expected to drive further adoption and revenue growth. Amazon stock, while heavily invested in AI, faces criticism over its handling of labour relations and regulatory scrutiny, creating uncertainties that weigh on its stock.
The shift also reflects broader investor sentiment. As interest rates rise, large-cap stocks like Amazon with high valuations and slower growth face more scrutiny. Growth-focused investors are increasingly looking to mid-cap opportunities like Shopify that promise higher returns over the long term.
The move from Amazon stock to Shopify isn’t about abandoning a tech giant but rather reallocating resources to a nimble, innovative company poised for future success. Shopify’s impressive financial performance, growth trajectory, and focus on empowering small and medium businesses (SMBs) make it a compelling choice for investors seeking exposure to the evolving e-commerce landscape. Meanwhile, Amazon stock remains a cornerstone in many portfolios but is grappling with the challenges of maintaining its status as a dominant player in a mature market.
