Amazon Just Became the Market’s Best Investment

Earnings season has been a bit concerning so far. Shares of stalwart names like Microsoft (MSFT 0.73%), Meta Platforms (META 2.10%), and Apple (AAPL 0.65%) have all suffered pullbacks in the wake of lackluster results and/or disappointing guidance. Given that these are among the market’s most prolific companies, their trouble bodes bearishly for the market as a whole.

Don’t be too quick to jump to such a sweeping conclusion though. There’s a clear divergence in performances of different companies. Some are struggling, but others are doing great.

E-commerce giant Amazon (AMZN 1.90%) is of the latter variety. In fact, it may have just become a top stock pick.

Amazon is doing everything right even if its peers aren’t

The claim seems overly sensational at first, but it actually holds up under the light of scrutiny. Last quarter’s top line of $158.9 billion was up 11% year over year, driving per-share profits up from $0.94 in Q3 of last year to $1.43 this time around. That’s stronger sales growth than the venerable Apple was able to muster.

Meanwhile, although Microsoft and Meta saw better top-line growth for the three-month stretch in question, both of these other outfits still served up lackluster forecasts. Meta intends to significantly ramp up spending on artificial intelligence in the near future, while Microsoft’s projected revenue of $68.1 billion for the quarter ending in December fell short of the consensus of $69.8 billion. Amazon’s looking for sales growth of around 9% for the current quarter, pumping operating income up to the tune of 36% as a result. Not bad.

All of these were key factors in each stock’s post-earnings action. Of these four names though, Amazon stock was the only one to move higher following the news.

It’s not just Amazon’s overall numbers, however, that sent its stock higher last week. How it produced this growth — and will likely continue doing so — is a key factor as well. Most of the improvement was supplied by its cloud computing arm, Amazon Web Services (AWS). Its revenue growth of 19% pumped up AWS’ operating income from just under $7 billion a year ago to more than $10.4 billion in Q3 of this year, inflating its operating profit margin from 30% then to 38% now. There’s room for this measure to continue widening as well, adding to the 60% of companywide operating income that Amazon Web Services alone already accounts for.

Data source: Amazon Inc. Chart by author. Figures are in billions.

Then there’s its advertising business. This high-margin revenue improved 19% to a third-quarter record of $14.3 billion, once again confirming that this evolution of Amazon’s business model makes good sense. That’s roughly one-tenth of the company’s total top line.

But, perhaps the company’s most encouraging win during its third quarter of…