Alphabet Inc. Could Overtake Apple. Inc as World’s Largest Company
If movements in the stock market are any indication, Alphabet Inc. (NASDAQ:GOOG), the parent company which owns Google, might soon be toppling Apple Inc. (NASDAQ:AAPL) to become the world’s most valuable stock.
It turns out that having money is one thing, but using it wisely to fuel growth is quite another entirely.
Alphabet’s market value now tops $499 billion, which puts it in competitive territory with Apple stock, worth about $674 billion, on the S&P 500. What should be worrying the latter company is that the difference between the two is narrowing fast, and when you take into account growth momentum and cash stockpiles, there appears to be a relatively small gap between the two companies in the single-digit range.
Indeed, once you take away Apple’s truly massive cash hoard of $206 billion, the difference between the two is only about nine percent. (Source: “Just how much cash does Apple have?” CNBC, October 28, 2015.) Alphabet for its part has about $73.0 billion in cash reserves, though it uses it far more efficiently than Apple does. (Source: “Apple Still Leads Cash-Rich Silicon Valley, Nearly Doubling Microsoft,” Forbes, October 27, 2015.)
If this movement continues, then it appears that Alphabet stock could overcome Apple stock. This will represent a major shift in Apple’s position, as the manufacturer of the iconic iPhone and iPad has held the top spot for many years now.
AAPL vs. GOOG: How Did This Happen?
Alphabet (though it was then Google) began 2015 on very solid financial footing, with a valuation of $291 billion. A strong cash injection from its advertising business through YouTube and on mobile devices caused the stock price to skyrocket by approximately 38% in under a year however, which is where the stock price competition with Apple began. Apple began this year, at a value of $454 billion, minus the company’s cash position; today, the tech giant is worth $674 billion, while Alphabet is valued at $499 billion.
Translation: the gap between the two companies is rapidly narrowing, and Alphabet is fast gaining on Apple.
The Apple stock price, while up by about four percent this year, is nowhere near the atmospheric rise in the Alphabet stock price. One might not be going too far in saying that Apple’s stock has merely kept pace with overall market trends in the tech sector.
Apple’s stockpile of cash has grown at a rate roughly double that of its stock value this year. At the end of June, the company was in possession of $202.8 billion in liquid cash and market securities, which is approximately 14% higher than what it held in December of 2014. Looking from the perspective of Apple’s market capitalization and net cash position, the company can be valued in the range of $457 billion.
While that sounds like an impressive figure, remember that Apple began 2015 with a value of $454 billion, adjusted for net cash.
Translation: Apple may be the most valuable company in the world, but that valuation has essentially stagnated when you look at strict growth. Having tons of cash on hand is not in and of itself a solid growth strategy.
Alphabet’s value, adjusted for net cash reserves, has absolutely skyrocketed to $431 billion, which is roughly nine percent shy of Apple’s valuation. When you consider that Apple was worth almost twice that of Alphabet at the beginning of this year, you start to understand why investors are sitting up and taking notice of the narrowing value gap between the two tech giants.
The Bottom Line on the Alphabet Stock Price Forecast
Alphabet announced a better-than-expected third-quarter earnings report last week, as its bottom line outperformed analysts’ estimates. The tech giant reported revenue of $18.68 billion, well above the $18.53 billion forecasted by market analysts, and earnings per share of $7.35, higher than the expected $7.21.
The trend I discussed above is in no way slowing down, and is in fact gaining momentum.
Alphabet has a tiny debt load relative to its size and a manageable, albeit large, cash balance of about $73.0 billion. This equals three times what the tech giant has spent on various acquisitions in the last decade, which means it is seeing very real returns on its investments. And finally, the company provides important services which are absolutely fundamental to how our global economy functions.
It’s for these reasons and others that I remain bullish on the Alphabet stock price, and why I believe it might overtake the Apple stock price to become the world’s biggest company sooner rather than later.