Alphabet and Amazon are bearing down on Apple.
Well, it’s official: Another company has surpassed Apple‘s (AAPL 2.16%) market cap. Last week, Nvidia became the second-largest U.S. company, trailing only Microsoft.
It was another blow to Apple, whose revenue remains stuck in neutral. And it’s facing a federal antitrust lawsuit.
Indeed, given Apple’s struggles and the impressive growth of some of its fellow tech megacaps, several more companies will likely surpass Apple’s market value over the next decade. I expect Alphabet (GOOG 1.53%) (GOOGL 1.52%) and Amazon (AMZN 0.06%) will be among them.
Image source: Getty Images.
The case for Alphabet
As of this writing, Alphabet has a market cap of $2.2 trillion, trailing Apple by “only” $900 billion.
At first blush, that gap might seem insurmountable, but for a megacap, it’s entirely feasible. Nvidia, for instance, closed a recent gap of $1.8 trillion with Apple in less than six months.
And Alphabet is up by about 26% year to date, while Apple is up just 6%. That means the former has shrunk the lead of the latter by about $275 billion so far this year. If that trend continues, Alphabet will surpass Apple in size within a couple of years.
That might turn out to be too much to expect, but over the long term, I do think Alphabet will catch up. First and foremost, Apple is a hardware company. It designs and sells computers, tablets, watches, and smartphones. Alphabet, on the other hand, is a software company. Its signature business is internet search through Google. It makes most of its money by selling digital ads. Crucially, digital advertising is cheap and easy to scale; mass production of physical electronics is not.
What’s more, Apple has put its signature product, the iPhone, into the hands of almost every human being who might want one. With an estimated 1.4 billion iPhones in use today, there’s little room for it to grow its share of that key market.
Conversely, Alphabet’s revenue grew 15% in the first quarter. The company relies on digital ad revenue (from its Google search business and YouTube), subscription revenue (YouTube, Google Fiber), and data center revenue from its Google Cloud segment. Those diversified revenue streams will help keep its growth humming along well into the future.Â
Amazon
E-commerce and cloud services leader Amazon has a market cap of $1.9 trillion, which trails Apple by about $1.2 trillion.
But like Alphabet, Amazon has narrowed the gap this year. Amazon shares have rallied by 22% year to date, with the company’s market cap increasing by about $300 billion, while Apple has gained around $150 billion. If Amazon keeps closing the gap at that rate, it could catch Apple in around four years.
That isn’t out of the question. Amazon’s annual revenue is almost $600 billion — roughly the same size as Sweden’s entire economy in 2022. Moreover, the company is growing sales by 13% year over year, with its expansive e-commerce business and its industry-leading cloud services division, Amazon Web Services (AWS).
Moreover, the pace and size of advancements in artificial intelligence (AI) could further accelerate that growth. AWS is a key driver for Amazon’s profits, and that segment is in position to capitalize on this revolution. AI-powered apps require enormous computing power, the sort that can only be provided by high-performance data centers, many of which are run by AWS.
Amazon is a tech juggernaut that is likely to continue growing — and growing faster than Apple.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Alphabet, Amazon, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, and Nvidia. The Motley Fool has a disclosure policy.