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.

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 the year is the continued progress being made by its international e-commerce business.

It's an often-overlooked detail due to its relatively small size, but historically, Amazon's overseas efforts have been unprofitable. That is, until now. Finally, with enough scale and the right cost controls in place, its international arm is consistently generating operating income. And increasingly so.

Although not a particularly big profit center yet, Amazon's international operation is a fast-growing one, with even faster-growing income. It's now making a much bigger contribution to the company's bottom line than most people realize, and should continue doing so for a while.

The kicker: Whereas shares of Microsoft, Apple, and Meta have all been soaring to repeated record highs for the past three years (leaving them vulnerable to the sort of selling they've each recently suffered), that's not the case for Amazon. Amazon stock is now only slightly above its pandemic-prompted peak despite last week's earnings-inspired surge. There's also room for it to continue climbing before becoming overextended.

Not forever, but certainly for now and the foreseeable future

None of this is to suggest Apple or Microsoft are unownable, or that their stocks will never see gains again. Things change. Indeed, change is constant. Their stocks will eventually reach a compelling price again. Their top and bottom lines will begin growing the way investors expect them to again. Just give it time.

To the extent time is money though, for the time being, Amazon is arguably one of the market's best investments, and certainly the top prospect among the so-called "Magnificent Seven" stocks. There are no shortcomings in last quarter's earnings report to pick apart, and guidance for the fiscal fourth quarter now underway was nothing less than what investors were anticipating. There's no reason to think this won't remain the case into the foreseeable future either, while shadows of doubt are now being cast on Meta, Apple, Microsoft, and others.

This is admittedly a philosophically simple comparison of Amazon to comparable alternatives. But, that's kind of the point. Sometimes it's the simple -- even obvious -- differences that end up paying off far more than it seems like they should.