Amazon.com, Inc. (AMZN)vs Microsoft Corporation (MSFT)

Quick verdict

Amazon.com, Inc. (AMZN) and Microsoft Corporation (MSFT) appeal to different investors. On our six-factor framework, AMZN scores 4.5 and MSFT scores 1.5. MSFT looks cheaper on the multiples that matter, while AMZN grows faster and neither clearly earns higher returns on capital. Overall, AMZN edges this comparison, but the right pick depends on whether you prioritise value, growth, income or balance-sheet safety.

2-year relative performance

At-a-glance comparison

Business model and revenue mix

Amazon.com, Inc. operates in Internet Retail (Consumer Cyclical), while Microsoft Corporation sits in Software—Infrastructure (Technology). The two operate in different sectors, so cyclicality and end-market exposure differ — factor that into any portfolio overlap. AMZN carries a beta of 1.53 versus 1.27 for MSFT, meaning AMZN has historically been the more volatile of the two.

Valuation

On valuation, MSFT is the cheaper stock. AMZN trades on a forward P/E of 45.95 and EV/EBITDA of 32.34, against 16.83 and 36.41 for MSFT. Price-to-sales is 20.74 vs 15.59, and free-cash-flow yield is 2.0% vs 5.6%. A higher multiple is only justified if the company can sustain faster growth or wider margins, which is exactly what the next sections test.

Growth profile

AMZN is the faster grower. AMZN has compounded revenue at 16.9% over three years with EPS growth of 25.7%, while MSFT has delivered 13.4% revenue and 12.8% EPS growth. Growth like this is the single biggest driver of long-term returns, but it also tends to come with a richer valuation, so it must be weighed against the multiples above.

Profitability and quality

On profitability and quality, neither clearly is stronger. AMZN posts a 45.9% operating margin, 26.3% return on equity and 17.3% return on invested capital. MSFT posts 18.8%, 47.0% and 31.5% respectively. Return on invested capital above roughly 15% is a hallmark of a durable competitive advantage, so this metric deserves particular attention.

Balance-sheet risk

AMZN has the safer balance sheet. AMZN carries net-debt/EBITDA of 0.86x with a current ratio of 1.04, versus 1.00x and 1.35 for MSFT. Lower leverage gives a company more room to invest through a downturn and reduces the risk of dilution or distress.

Price performance and shareholder returns

Over the past year AMZN returned 4.0% against -13.8% for MSFT; on a three-year annualised basis it is 42.8% vs 4.7%. AMZN yields 0.0% and MSFT yields 0.0%. Past performance never guarantees future results, but the multi-year track record shows how the market has rewarded each business so far.

Which stock fits which investor

For value-oriented investors, MSFT is the better fit on today's multiples. Growth investors will likely prefer AMZN, which is expanding faster. Income investors should lean toward AMZN for its higher shareholder yield, while investors who prize quality-at-a-reasonable-price will favour MSFT for its superior returns on capital. This is a comparison of facts, not a recommendation — your time horizon, risk tolerance and existing holdings should drive the final decision.

• Value: MSFT
• Growth: AMZN
• Income: AMZN
• Quality: MSFT

Frequently asked questions

Is AMZN or MSFT the better buy right now?

Neither is universally "better." AMZN scores 4.5 and MSFT scores 1.5 on our six-factor framework. MSFT is cheaper, AMZN grows faster, and neither clearly is higher quality — so the right pick depends on your objective.

Which stock is cheaper, AMZN or MSFT?

MSFT is the cheaper stock across forward P/E (45.95 vs 16.83), EV/EBITDA (32.34 vs 36.41) and price-to-sales (20.74 vs 15.59).

Which has grown faster, AMZN or MSFT?

AMZN has the stronger growth profile, with three-year revenue CAGR of 16.9% for AMZN versus 13.4% for MSFT.

Which stock pays a bigger dividend?

AMZN yields 0.0% and MSFT yields 0.0%, so AMZN is the stronger income choice.

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