Amazon is undervalued (fair value 317 vs price 262) and its EPS growth should reach 25%-30% over the next few years versus the 21% analysts expect, as AI investments pay off. It ranks fourth behind Netflix given heavy capex and short-lived assets, but he owns it and would add more.

But in this video, I wanted to compare my third and fourth stocks to determine which is the third best stock to buy right now between Netflix and Amazon.

The competition is very close for me, as I own both companies and I am trying to determine which one is better in third or fourth place. Let's compare these two interesting companies, both of which are undervalued, both of which are on the list of the top 10 stocks to buy, and both of which are in my investment portfolio.

In the long term, analysts who follow Netflix and Amazon expect very similar earnings per share growth of around 21%.

Meanwhile, Amazon also began to take a downward trend. But since mid-2025, Amazon's stock earnings estimates have started to take an upward trend.

Therefore, analysts now estimate that Amazon's earnings per share will be at 21% and expectations are rising. So, from my point of view, I actually think that Amazon's earnings per share estimates are very low here.

I think Amazon’s earnings per share will likely be closer to 25%, and perhaps even 30%, over the next few years, as the company reaps the rewards of its massive investments in artificial intelligence and accelerates growth in its most profitable sector.

For this reason, I estimate that Amazon's earnings per share forecast for the next few years will be better than Netflix's earnings per share forecast for the next few years. Amazon has done a great job of increasing its operating profit margin.

Although the bulk of Amazon's revenue comes from e-commerce, a relatively low-margin business, it is working to improve margins in those businesses both within and outside the United States.

But it remains a relatively low-margin business and is likely to remain so for many years to come. Margins will improve. The margins are better than other retailers.

For example, if you compare Amazon to a bunch of other retailers like Walmart, Costco, Target, Home Depot, etc., Amazon's margins, well, let's exclude Home Depot because home improvement retailers like Home Depot and Lowe's have very strong margins.

It is significantly higher than the margins of other retailers such as Costco, Target, and Walmart, which hover around low to medium single digits. Kroger, and others, are all in those low single digits.

But Amazon's operating margins are likely to be even higher as its logistics services improve and its network density increases, meaning more customers are ordering more products.

Therefore, Amazon makes multiple deliveries in the same neighborhood, and in this way reduces the delivery cost per household, and it learns where the required stocks are available, and when they are needed.

Therefore, she improves in performing what she does. It can be said that it is the best in its category in this respect.

When estimating this in the future over periods of 5, 10 and 15 years, I think that Amazon’s return on invested capital will approach Netflix’s in the next few years, and may even slightly surpass it during the next five years; But in the longer term, i.e., 10, 15 or 25 years, I think Netflix's returns will be better than Amazon's because Netflix's business model is lighter in terms of assets; it does not invest in fixed assets or fixed capital.

It invests in assets such as content, which is expensive and requires many millions to produce each episode of each season, but it does not invest much in fixed assets such as warehouses, logistics, data centers, components, and chips that go into those centers.

The cost of components, and the cost of those fixed assets, is likely to increase much faster than the cost of creating content, which I expect will decrease.

Based on the forward price-to-earnings ratio, Netflix shares are trading at a significantly lower valuation compared to Amazon. This was rarely the case. This has rarely been the case over the years.

You can look back here all the way to 2024 and a little before. Netflix has traditionally traded for a more favorable rating compared to Amazon. But the balance has shifted in recent months, largely due to investor sentiment.

This is largely because investors were very pessimistic about Netflix, with earnings per share estimates being revised downwards, while sentiment surrounding Amazon's stock is improving.

Thus, the valuation difference has been reversed, and now Amazon is trading at a higher price, with a forward price-to-earnings ratio of 25 compared to 18 for Netflix.

Similarly, I compared the valuation using a discounted cash flow model and calculated a fair value for Amazon at 317 compared to its market price of 262, which is about 21% less than its true value.

For Netflix, I calculated a fair value of 117, while the current market price is 70, meaning it is undervalued by about 68%.

My biggest concern with Amazon is the concentration of its revenues and the significant increase in its capital expenditures. This year it is spending $225 billion in capital expenditures to build its own AI data centers.

It takes Amazon a lot of capital to generate that profit growth, to generate that revenue growth, compared to the amount of capital Netflix needs to achieve similar growth, doesn't it?

On the other hand, Amazon's assets, data centers, and the chips that go into those centers, are not long-lasting, are they? From 3 to 6 years, maybe 10 years if you squeeze them too hard into some of these chips before you simply need to replace them.

Thus, Amazon generates similar amounts of projected earnings per share growth over the next several years with a much larger capital expenditure budget and a much shorter lifespan for the assets that will earn those earnings, whereas Netflix's assets will last much longer and offer better value to the next Netflix subscriber 5 years from now.

So it's a difficult decision for me. I love them both. I own both of them. I have ranked both highly on my list of best stocks to buy, but if I had to pick one to buy, and the ones I think are third and fourth, I would say Netflix is third and Amazon is fourth.

But they are both wonderful. I own both of them. You don't have to choose between them. You can own them both, as I did, and I am interested in adding more of both to my investment portfolio.

...and I will also be live streaming Amazon's earnings results next week, on October 29, after the markets close at approximately 1:15 PM Pacific Time. Incidentally, if you join as a member, you will have access to Amazon's direct earnings coverage after the markets close next week.