Consider Ditching Palantir and Opting for these Alternative Tech Stocks
In the dynamic world of technology, two companies stand out for their impressive growth and performance – Spotify Technology (SPOT) and Amazon (AMZN). Let's delve into the growth prospects and factors driving the success of these tech giants.
**Spotify Technology (SPOT)**
With over 30% market share in music streaming and more than 640 million users worldwide, Spotify is the global leader in audio streaming. The company aims to reach 1 billion users by 2030, supported by strong user growth and guidance for 665 million Monthly Active Users (MAUs) in Q4 2024 and 260 million premium subscribers.
Revenue growth is robust, with a 5-year Compound Annual Growth Rate (CAGR) of around 18%. Fiscal year 2025 revenue estimates show year-over-year increases of approximately 14-17%. Earnings estimates signal strong improvement, with a consensus Earnings Per Share (EPS) growth of about 44% expected for the next fiscal year.
Analysts maintain a generally positive sentiment, with moderate buy ratings, and price targets averaging around $730 to $840, reflecting confidence in Spotify’s mid-to-long-term growth potential. Key drivers include market leadership, expanding user base, pricing power, early-stage opportunities in commerce related to app store changes, and diversification into audio formats beyond music.
However, competitive pressure is intense in the audio streaming industry, which could affect margins and growth rates. Additionally, Spotify’s valuation is currently above some measures of fair value, which introduces some risk of price volatility and investor hesitation. Despite strong revenue growth, Spotify has at times missed earnings estimates, adding some caution to its near-term outlook.
**Amazon (AMZN)**
Amazon continues to be a dominant leader in e-commerce and cloud computing (AWS), each providing strong and diversified revenue streams. Growth drivers include expanding AWS cloud services, ongoing e-commerce penetration globally, advertising business growth, and investments in AI and logistics.
Amazon’s scale, innovation in technology, and vast ecosystem generally position it as a high-growth, large-cap tech stock with solid long-term prospects. Compared to Spotify, Amazon is a broader technology conglomerate, offering more diversified exposure to multiple tech sectors beyond streaming or content.
Amazon's e-commerce margins may get a significant boost from the expansion of robotics in its fulfillment centers. The company already has nearly a million robots working in its fulfillment centers and plans to expand their number in the coming years. Amazon is also testing humanoid robot deliveries, which could drastically reduce costs and boost margins for the company’s e-commerce division.
In the cloud services sector, AWS generates over $100 billion per year in revenue, equivalent to the 35th largest American company by revenue. The growth of AI will benefit AWS, as more organizations employ AI tools. AWS generates more than half of Amazon’s overall profits and is likely to expand as more organizations incorporate AI systems into their operations.
**Comparison with Other Technology Stocks**
While both companies show positive growth compared to many peers, Amazon tends to exhibit more stability due to its varied business lines, while Spotify is more exposed to the dynamics of the streaming market. Investors may want to consider Spotify Technology (SPOT -0.25%) as an alternative to Palantir Technologies (NASDAQ: PLTR), especially given Spotify's paid subscriber base has grown at a double-digit rate for several years.
Spotify uses AI-powered features to build personalized playlists and introduce new music and artists. The price hikes and layoffs at Spotify have been the driving force behind the expansion in margins, with gross margins for Spotify rising to 31%, the highest ever for the company. Spotify Technology (SPOT -0.25%) is one of the year’s best-performing stocks, up 64% year to date.
In conclusion, while both Spotify and Amazon offer compelling growth prospects, their unique business models and industry positions present different risk-reward profiles for investors. Spotify's growth is driven by its dominant streaming position and expanding user base but is tempered by competitive pressures and valuation concerns. Amazon’s growth is anchored in its cloud and e-commerce dominance, providing a more diversified tech exposure. The secular growth trend of streaming continues to expand worldwide, while Amazon's robust e-commerce and cloud businesses offer a more stable growth trajectory. Investors may want to consider adding Amazon shares now to capitalize on its long-term growth prospects.
- Investors may consider Spotify Technology (SPOT) as an alternative to other technology stocks like Palantir Technologies (NASDAQ: PLTR), given Spotify's paid subscriber base has grown at a double-digit rate for several years.
- The growth prospects of Spotify are driven by its dominant streaming position and expanding user base, but the company's valuation and competition pose certain risks.
- Amazon, on the other hand, offers a more diversified tech exposure due to its dominance in both e-commerce and cloud computing (AWS). Amazon's growth is anchored in these sectors, providing a more stable growth trajectory compared to Spotify.
