Amazon vs. Home Depot: Where Should You Invest Your Money?
E-commerce giant Amazon (NASDAQ: AMZN) outperformed the market in 2024 with a 45% increase in its share price, compared to the S&P 500‘s (SNPINDEX: ^GSPC) 24% rise (as of now). In contrast, Home Depot‘s (NYSE: HD) shares lagged, rising only 12.4% this year due to a decline in DIY home improvement spending.
Both companies dominate their markets, yet their share price performance differs significantly. This raises the question: which of these stocks offers a better investment opportunity right now? Let’s explore.
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The Argument for Amazon
As a leading player in e-commerce, Amazon also ventures into various sectors, including cloud computing and artificial intelligence (AI). While not every initiative succeeds, Amazon has a track record of performing well in multiple fields, making it a favored choice for many investors.
A remarkable 40% of the U.S. e-commerce market is in Amazon’s hands, far exceeding rival Walmart‘s 7% share. This strong position has led to significant sales, with North American revenues climbing 9% in the third quarter (ending Sept. 30) to reach $95.5 billion.
To maintain its competitive edge, Amazon introduced a new marketplace called Amazon Haul. This mobile-only platform offers U.S. customers access to affordable items, primarily priced under $20, in response to competition from China-based Temu, owned by PDD Holdings.
The introduction of Amazon Haul aims to bolster the company’s position in the e-commerce sector. However, the real backbone of Amazon’s success is its cloud computing segment, Amazon Web Services (AWS). In the third quarter, AWS’s operating income surged nearly 50% to $10.4 billion. With a 31% market share in cloud computing, Amazon stands poised for continued growth as investment in AI drives more spending on cloud data centers. According to Goldman Sachs, the total revenue from the cloud computing sector is expected to hit $2 trillion by 2030, fueled by the rapid rise in AI-related expenditures.
Some investors may think Amazon has reached its peak, yet its ongoing strength in e-commerce and expanding profits from AWS suggest that further growth remains on the horizon.
The Argument for Home Depot
Home Depot leads the home improvement sector with over $40 billion in sales for the third quarter (ending Oct. 27), significantly outpacing Lowe’s revenue of $20 billion. Nevertheless, the company is currently facing challenges.
Same-store sales fell 1.3% year-over-year, indicating a decline in customer interest. Management predicts a further 2.5% drop in comparable sales for the rest of the fiscal year.
The North American home improvement market was valued at $667 billion in 2023 and is projected to grow to $1.2 trillion by 2032. Although Home Depot will benefit from this growth, the current downturn in customer spending suggests that it may take some time before DIY projects regain popularity.
Home Depot CEO Ted Decker highlighted concerns over higher interest rates and economic instability affecting larger remodeling projects. He remains hopeful that demand will normalize, but doesn’t believe that the company has fully recovered yet.
The Conclusion: Amazon is the Stronger Buy at This Time
Currently, Home Depot has a forward price-to-earnings (P/E) ratio of 24.8, while Amazon’s ratio stands at 35.7. This makes Home Depot’s stock appear cheaper, but it is not necessarily the better investment right now.
The unpredictable nature of the housing market is evident. Home Depot’s leadership expresses uncertainty about sales recovery, making Amazon a preferable choice for investment at this time. However, if you have patience and believe in a rebound for home improvement spending, adding Home Depot stock during its recent decline could be worth considering.
Is Now the Right Time to Invest $1,000 in Amazon?
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John Mackey, the former CEO of Whole Foods Market, an Amazon subsidiary, serves on The Motley Fool’s board of directors. Chris Neiger does not hold positions in any of the mentioned stocks. The Motley Fool has investments in and recommends Amazon, Goldman Sachs Group, Home Depot, and Walmart. The Motley Fool advises investors to consider Lowe’s Companies as well. For more details, please refer to The Motley Fool’s disclosure policy.
The views and opinions expressed in this article belong to the author and may not necessarily reflect those of Nasdaq, Inc.
