Buying Microsoft and Amazon stocks: analysis and forecast for 2021 (and beyond)

Why invest in Microsoft shares in 2021

Microsoft shares (NASDAQ: MSFT) have returned 280% over the past five years, but the company’s growth opportunities in cloud services should pave the way for further gains. Indeed, Microsoft continues to experience double-digit revenue growth and impressive results from its cloud segment, now the software giant’s biggest business. The key driver is Microsoft Azure: revenues increased by 48% in the last quarter of 2020, new business from large companies that increasingly rely on cloud computing to manage devices, apps and services.

Microsoft’s consumer products also continue to perform well. The number of monthly active devices running Windows 10 has grown double-digit year over year, while gaming revenue from Xbox content and services increased by 30% (before the new Xbox launch in November). The gaming segment accounted for just 8% of total revenue in fiscal 2020, but analysts’ forecasts for Microsoft indicate that the Xbox business could begin to grow significantly in the next decade. The Xbox Game Pass subscription service already has 15 million members.

Microsoft is a highly profitable company and has an enviable position as a software service provider. With a price / free cash flow ratio of 33, the stock is not too expensive relative to Microsoft’s underlying growth and should offer satisfying returns for many years.

Why invest in Amazon shares in 2021

Amazon (NASDAQ: AMZN) is the king of e-commerce, but it still has great growth potential because, despite years of growth, online sales are less than 15% of total retail spend. More and more people are shopping online, which plays on the strengths of Amazon’s large selection, fast shipping and excellent customer service. A big growth potential for Amazon is the increased engagement of Amazon Prime subscribers, who increasingly take advantage of online grocery delivery from Whole Foods Market.

If Microsoft has growth prospects from its cloud services, Amazon with Amazon Web Services controls the top spot in the cloud infrastructure services market – that’s the bulk of Amazon’s operating profit. The latest earnings report also highlights that Prime Video grew 80% year-over-year in the third quarter, reflecting the irresistible appeal of a Prime subscription.

Amazon had $ 96 billion in revenue in Q3 2020, up 37% year-over-year, and analysts estimate it reached $ 119 billion in revenue for Q4 2020, a 36% year-over-year increase. Amazon previously surpassed $ 100 billion in revenue in three months.

Stratospheric numbers thanks to which Amazon goes far beyond e-commerce, web-services and videos, also becoming a big in sustainable finance, launching the 2 billion dollar Amazon green bond a few months ago.

Amazon shares are more expensive than Microsoft shares and trade at a P / FCF ratio of 64, but Amazon is growing much faster and still has a long track of growth. Amazon is one of the largest holdings of many top investors.