E-commerce leader Amazon (NASDAQ: AMZN) trounced the market in 2024, with its share price climbing 45% compared to the S&P 500's (SNPINDEX: ^GSPC) 24% gains (as of this writing). Meanwhile, Home Depot's (NYSE: HD) shares struggled, gaining just 12.4% for the year amid a slowdown in DIY home improvement spending.
Both of these consumer goods companies are leaders in their respective markets and, while their current share price gains don't compare, either could be great long-term investments. But which is the better buy right now? Let's take a look.
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Image source: Getty Images.
The case for Amazon
Amazon is, of course, a dominant e-commerce company that also has its hands in a range of things from cloud computing to artificial intelligence (AI). While not all of its endeavors are successful, many avenues Amazon pursues often work out well for the company, making the stock a no-brainer buy for many investors.
Consider that Amazon has 40% of the U.S. e-commerce market, easily outpacing rival Walmart, which has just over 7% market share. This lead translates to massive sales, with North American revenue rising 9% in the third quarter (ended Sept. 30) to $95.5 billion.
Amazon recently launched a new, lower-priced version of its marketplace called Amazon Haul to maintain its lead and fight off increasing competition. The mobile-only e-commerce platform is Amazon's answer to China-based Temu (owned by PDD Holdings) and gives U.S. customers access to items priced under $20.
That move should help Amazon stay even more competitive in e-commerce, but it's the company's cloud computing business, Amazon Web Services (AWS), that is the true key to its success.
AWS' operating income rose nearly 50% in the third quarter to $10.4 billion, and Amazon likely has many more years of AWS growth ahead of it. The company already holds 31% of the cloud computing market, and spending on cloud data centers is accelerating. Goldman Sachs estimates revenue from the entire cloud computing market will reach $2 trillion by 2030, thanks to a rapid increase in AI spending.
Some investors may overlook Amazon because they believe its best days are behind it, but with the company's continued dominance in e-commerce and its expanding cloud operating income as AI investments accelerate, there's likely more growth ahead for Amazon.
The case for Home Depot
Home Depot is the leader in DIY home improvement, with more than $40 billion in sales in the third quarter (ended Oct. 27), compared to rival Lowe's $20 billion in revenue. But despite its lead, Home Depot is struggling a bit.
The company's same-store sales fell 1.3% compared to the year-ago quarter, an indication that customers aren't as eager to walk through its doors and make purchases as they were this time last year. Home Depot management doesn't expect the remainder of the year to be much better, estimating a 2.5% decline in comparable sales for the fiscal year.
The North American home improvement market was worth $667 billion in 2023 and will reach an estimated $1.2 trillion by 2032. While Home Depot will benefit from this, the current slowdown in customer spending means the company will have to wait a little longer before customers are eager to jump into DIY projects again.
"We continue to see pressure on larger remodeling projects, driven by the higher interest rate environment and continued macroeconomic uncertainty," Home Depot CEO Ted Decker said during the most recent earnings call. Decker is optimistic that demand will return to normal, but added, "We just don't think we're quite there yet."
The verdict: Amazon is the better buy now
Home Depot's shares have a forward price-to-earnings ratio of 24.8, compared to Amazon's forward P/E ratio of 35.7. That makes Home Depot's stock less expensive than Amazon's, but I still don't think it's the better buy.
If the housing market has shown anything over the past few years, it's that no one can reliably predict where it's going. Home Depot's management doesn't seem confident that it's out of the woods just yet with comparable-store sales slowdowns, which means it might be better to put your money toward Amazon's stock for now.
Of course, if you're willing to be patient for home improvement spending to increase again, adding some Home Depot stock amid its recent share price pullback probably isn't a bad idea either.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Goldman Sachs Group, Home Depot, and Walmart. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
