A stock market sell-off in 2022 has brought down the share prices of some of the world's most valuable companies. For instance, Microsoft's (MSFT -0.71%) shares have tumbled 26% year to date, while Amazon's (AMZN -0.83%) have fallen 48% in the same period.
As leading companies in some of the most lucrative markets, Microsoft and Amazon are attractive investments amid a sell-off. Microsoft has a considerable market share in cloud computing, computer operating systems, and gaming. Meanwhile, Amazon is the leader in cloud computing and the champ in e-commerce.
As a result, you might be looking at adding at least one of these companies to your portfolio, wondering which is the better buy. So without further ado, let's take a look at each.
Microsoft
Despite a stock dip in 2022, Microsoft shares have risen 195% in the last five years. The company offers investors a diverse business home to top-performing brands such as Windows, Office, Xbox, and Azure, and has expanded its dominance in multiple industries.
Since its CEO Satya Nadella took the reins in 2014, Microsoft has become a true force in the tech world. In fact, the company has seen a compound annual revenue growth rate (CAGR) of 15.4% in the last five years and 12.08% over the last decade.
The company's primary growth driver has been its cloud computing platform, Azure. The service is responsible for the second-biggest market share in the industry at 21%, only behind Amazon Web Services' 34%. In its most recent quarter, Microsoft's intelligent cloud segment rose 20% year over year to $20.3 billion, with operating income earning $8.9 billion.
According to Grand View Research, the cloud computing market will increase at a CAGR of 15.7% until at least 2030. And with that, Microsoft could be in an excellent position to see significant gains over the long term.
Moreover, Microsoft's Windows operating system has held between a 70% and 91% market share since 2013, helping the company grow its software and gaming businesses.
With powerful brands and a discounted stock, Microsoft makes a superb long-term investment.
Amazon
The past year has been challenging for Amazon investors with shares plummeting almost 50%. Macroeconomic headwinds have hit the company hard over the last year. Its cloud computing business, Amazon Web Services (AWS), made up 100% of its operating income in the previous quarter, while its e-commerce business saw earnings slump.
Despite the deep dive in Amazon's stock this year, investors who bought in five years ago are still up as the stock has increased 52% over the past five years, proving its consistency as a growth stock.
While the e-commerce market could suffer in the coming months, with a recession looming in 2023, the $9 trillion industry is still expected to grow at a CAGR of 14.7% until at least 2027. Considering Amazon held a 37.8% leading market share in the e-commerce industry as of June 2022, the company will likely gain the biggest advantage from the market's continued growth.
Additionally, as the biggest name in cloud computing, AWS is the company's fastest-growing segment. In Q3 2022, AWS revenue grew 27.4% year over year to $20.5 billion, while operating income rose 10.6% to $5.4 billion.AWS is incredibly promising for Amazon's future; despite being the smallest segment, it managed to make up for the $2.89 billion operating loss in the company's e-commerce segment.
Which should you choose?
Amazon's long-term outlook is positive. However, when comparing its price-to-earnings ratio of 82 against Microsoft's more attractive 26, the Windows company offers more value. Furthermore, Amazon's negative $26.3 billion in free cash flow as of Sept. 30, compared to Microsoft's $63.3 billion, makes the Xbox manufacturer feel like a more secure investment for now.
Both companies are home to robust businesses that have permeated their respective industries, making them exciting investments for the long term. However, after a challenging 2022, Microsoft has fared better, making it the superior stock and a solid buy this month.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com and Microsoft. The Motley Fool has a disclosure policy.
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