Question: Why pay 34x earnings for Amazon stock when you can buy Google stock for just 19x? That’s a tough sell—especially when you consider three straightforward reasons:
- Growth: Both companies post similar top-line growth, but Google edges out Amazon with a slightly higher rate of 14% versus 11%. This could indicate a stronger growth outlook for Google.
- Profitability: Google operates with much higher profit margins, exceeding 30%, meaning a greater share of its revenue turns into profits for investors. In comparison, Amazon’s margins are significantly lower, coming in at 11% or below. Despite similar revenue growth, Google’s efficiency gives it an edge on profitability.
- Tariff Exposure: Google’s business appears less susceptible to tariff pressures than Amazon’s. With Amazon’s global e-commerce footprint, it is more exposed to trade policies and supply chain disruptions. Although rising data center costs may affect Google, its core ad business faces fewer tariff-related risks, particularly in China, where Baidu benefits from local regulation.
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Is Google A Safe Bet?
While Google may not fit the mold of a traditional “safe haven,” its track record during market disruptions is worth considering. The stock declined 45% during the 2022 inflation shock and 31% amid the Covid-19 downturn, showing that it is still prone to volatility.
However, the stock has already seen a significant correction, dropping from over $205 to under $160 now. This decline implies that much of the downside could already be factored in.
AI Innovation
With widespread belief that Artificial Intelligence represents a transformative, long-term growth theme, Google may offer a compelling case at its current valuation. Although both Amazon and Google provide AI infrastructure, Google’s real strength lies in its groundbreaking AI research and the seamless integration of that technology into products like Search and YouTube. This unique combination of innovation and massive reach positions Google favorably for continued AI-led growth.
What Could Go Wrong?
Naturally, investing in Google isn’t risk-free. There’s always a chance earnings might miss estimates or that growth could decelerate. Additionally, unpredictable events could adversely affect the stock. Investors should be prepared for potential volatility—including the possibility of a 30% decline from current levels. That said, for long-term investors with a 3-to-5-year horizon and a “buy-and-hold” strategy, Google’s current valuation might present a worthwhile entry point.
For those with lower risk tolerance, a hedged approach within a diversified portfolio, such as the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark, might offer a smoother ride while still capturing potential upside. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.
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