Apple or Alphabet: Make this your No. 1
Apple (AAPL) and Google parent Alphabet (GOOGL) are battling with each other to be the world's most valuable company. Investors just want to know which one will be the most valuable in their portfolios.
Online advertising company Alphabet this week saw its market capitalization hit $528 billion to briefly become the 12th company to be the most valuable company in the Standard & Poor's 500 — passing up Apple, which held the perch since 2012. Apple has since raced back to be No. 1 again, trading for $532 billion to Alphabet's $502 billion, but the rivalry makes investors wonder which investment will be better over the long term.
Investors clearly have a favorite for now: Alphabet. The company's ability to mine users' online personal data and sell them to the highest bidders has allowed the company to dominate the Internet ad business with very little competition yet. Shares of Alphabet are up more than 40% over the past year, while Apple's shares are down 19%.
Investors can look past just the market cap race and the stock prices to see how these two investments — while both giant tech plays — are very different. Investors need to consider the following differentials when making a decision, including:
• Apple's business is massive compared with Alphabet's. Apple and Alphabet might be worth about the same in the eyes of investors, but Apple's revenue and earnings are much larger. Apple's revenue of $235 billion and net income of $53.7 billion the past 12 months is more than three times greater than Alphabet's.
• Apple's growth is seen fading, while Alphabet's is seen growing. Perhaps because it's so much larger than Alphabet, and relies on the maturing smartphone business, analysts don't see much growth from Apple this year. Analysts are calling for Apple's adjusted earnings and revenue to fall more than 2% this calendar year, says S&P Capital IQ. Meanwhile, analysts see 17.2% and 14% adjusted earnings and revenue growth, respectively, from Alphabet this year. Longer-term, analysts think Apple will regain its growth — calling for 13.2% annual growth — but that's still below the 16.5% annual long-term growth expected at Alphabet.
• Apple has a lower P-E than Alphabet, but it's not necessarily cheaper. Apple is trading for 9.4 times its trailing earnings over the past 12 months, making some think it's a bargain next to Alphabet at 31.5 times earnings. But keep in mind Apple is a big hardware company, which tends to get a lower multiple than Internet companies. Also, Apple is trading for 4.5 times its tangible book value, or what's left of hard assets minus liabilities, which is roughly in line with Alphabet's 5.1.
Analysts still think Apple is the better bet, seeing the stock worth $134.76 a share in 18 months for 40% potential upside, says S&P Capital IQ. That beats the 24.8% potential upside to the $912.27 a share 18-month price target for Alphabet.
But investors should know they don't necessarily have to decide. Both stocks have huge weightings in the S&P 500, so if you own the index you own both. So you win no matter what.
Follow Matt Krantz on Twitter @mattkrantz