Evaluating Google vs. Amazon: A Closer Look at Valuation

Question: Why would you pay 34 times earnings for Amazon stock, when you can buy Google stock for 19 times? The answer lies in three key facts:

• Growth: Both companies show robust revenue growth, but Google is ahead with a 14% growth rate compared to Amazon’s 11%. This difference points to a potentially stronger growth trajectory for Google.
• Profitability: Google achieves profit margins above 30%. This higher margin means that more of Google’s revenue translates into profit for shareholders, while Amazon struggles with margins as low as 11%. Thus, Google appears more efficient and profitable despite similar revenue increases.
• Tariff Exposure: Google’s revenues are less exposed to tariff impacts compared to Amazon. With Amazon’s expansive global e-commerce activities, it faces more direct risks from trade policies and the complexities of international supply chains. Although rising costs for datacenters could affect Google, its core advertising business is less at risk from tariffs, especially in China, where local firms like Baidu gain advantage due to government restrictions.

Image by AS Photography from Pixabay

Is Google a Safe Investment?

Although Google (GOOG) may not be regarded as a traditional “safe haven” asset, its historical performance sheds light on potential risks during market volatility. For instance, Google saw its stock drop by 45% during the inflation spike of 2022 and by 31% amid the COVID-19 pandemic, indicating susceptibility to market downturns.

On the other hand, Google has already corrected significantly, falling from a peak of over $205 to below $160. This decline may suggest that the current price already incorporates some downside risk, making it a potentially more appealing entry point.

The Role of AI in Future Growth

With Artificial Intelligence expected to spur considerable long-term growth, independent of tariff issues, Google may present a strong long-term investment opportunity at its current price. While both Google and Amazon provide AI infrastructure, Google’s advantage lies in its leading AI research and its effective application within popular products. This synergy of groundbreaking research and a vast user base spanning platforms like Search and YouTube can fuel Google’s continued innovation in AI.

Potential Risks Ahead

Investing in Google is not devoid of risks. There’s always a chance that earnings could fall short of expectations or that growth may decelerate. Additionally, unpredictable global events might impact the stock negatively. Investors must be ready for potential fluctuations and should only invest if they can handle significant risks, like a possible 30% decrease from current levels. A rational perspective in investing is crucial to navigate any impulsive decisions. For long-term investors with a 3-5 year outlook, Google at its current valuation may offer a worthwhile entry point.

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The views and opinions expressed herein reflect those of the author and do not necessarily represent those of Nasdaq, Inc.