Technology stocks continue to attract growth investors as they have the ability to increase revenue and earnings at a faster pace compared to the broader market. In the last decade, tech stocks have been on an absolute tear easily outpacing the S&ampP 500. While the equity markets are trading near record highs due to the stellar rally in tech companies, investors might be worried about steep valuations and the possibility of a pullback.

However, it remains impossible to time the market which means investors should instead follow a disciplined strategy and keep investing in blue-chip companies as well as benefit from dollar-cost averaging and the power of compounding. Here, we take a look at two tech giants Facebook (NASDAQ: FB) and Amazon (NASDAQ: AMZN) to see which is a better bet right now.

 

FB stock is trading at a discount

Facebook is one of the largest companies in the world and is valued at a market cap of $936 billion. However, it still has enough room to gain momentum in 2021 and derive outsized gains to investors.

In Q1 of 2021, Facebook’s sales were up 48% year over year at $26.2 billion while operating income almost doubled to $11.4 billion. Its adjusted earnings per share stood at $3.30 significantly higher than consensus estimates of $2.37 per share. FB also beat Wall Street revenue estimates of $23.7 billion in Q1.

Facebook is the largest social media platform in the world and the second-largest digital ad platform as well. As the global economies reopen enterprise ad spending should move higher which will be a key driver of revenue growth for FB.

Further, the company is also gaining traction in emerging technologies such as virtual reality and augmented reality. FB CEO Mark Zuckerberg believes this business has reached an inflection point in terms of sales. For example, Oculus generates a majority of Facebook’s “other” category sales and experienced revenue growth of 146% year over year in Q1.

FB stock is trading at a forward price to sales multiple of 8.13x and a price to earnings multiple of 25.1x. However, analysts expect its earnings to rise at an annual rate of 23.7% in the next five years.

 

AMZN leads multiple markets

Amazon is another stock that has crushed peers in the last 10 years. Since June 2011, AMZN stock is up a staggering 1,470%. It means $1,000 invested in AMZN stock 10 years back would be worth close to $15,000 today. While Amazon is the largest e-commerce player in the world, it also leads the public cloud market and is the third-largest digital ad platform as well. Further, it occupies the pole position in growth verticals such as online content and game streaming.

Amazon recently pumped in $8.5 billion to acquire MGM which is one of the largest studios in Hollywood. This acquisition will help the company access a vast library of content titles and move the needle in terms of streaming sales.

The COVID-19 pandemic acted as a meaningful tailwind for Amazon as the company experienced accelerated growth rates in multiple businesses. Analysts expect AMZN to increase its sales by 27% to $491 billion in 2021 and by 18.6% to $582 billion in 2022. Comparatively, its earnings are forecast to grow at an annual rate of 38% in the next five years.

 

The verdict

We can see that both AMZN and FB are companies growing at a rapid clip. However, Amazon has a more diversified business compared to Facebook making it a better bet especially during economic downturns. AMZN stock is also trading at a higher discount compared to Wall Street’s price target estimates.

Analysts expect AMZN stock to touch $4,245 in the next 12-months which is 32% above its current trading price. Comparatively, FB stock is trading at a discount of 17% to analyst estimates.

Facebook (NASDAQ:FB)
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