Quick! What do the exact temperature of the sun, which horse finished last in the Kentucky Derby and the fact that Alphabet Inc (GOOG, GOOGL) could soon be a bigger company than Apple Inc. (AAPL) all have in common?
Answer: They’re all things I don’t care about.
I wish I could say the same for my journalistic colleagues and fellow students of the market. But judging by this week’s headlines, the latter of the three seems to have really caught their attention.
Unfortunately, because they’ve wasted time talking about the market caps of GOOGL and AAPL, I have to spend some time explaining why the issue doesn’t deserve one iota of your attention.
Who’s Bigger? GOOGL, or AAPL?
A little more than a year ago when AAPL shares were soaring in advance of the release of the Apple watch and iPhone 6s, many thought the company’s move to the number-one spot in terms of size — displacing Exxon Mobil Corporation (XOM) at the time — would stand for a long, long time.
Indeed, at one point, Apple boasted twice the market cap of then-behemoth Exxon Mobil.
It wasn’t a lead that would last, however. In the meantime, another giant now called Alphabet (the company formerly known as Google) has persistently clawed its way to the No. 2 slot, and may soon take the lead.
For perspective, Alphabet is now a $500 billion organization, and Apple is as well. GOOGL, however, is holding onto 2015’s 43% gain relatively well, off 10% from its December top while AAPL shares are down 20% from November’s peak and off 26% from last year’s record-breaking highs.
And it’s that little detail that at least partially taints Alphabet’s psychological victory. That is, Alphabet only caught up to Apple because Apple’s engine broke down.
All the same, the top dog is the top dog, regardless of the circumstances, and when you take the sheer cash hoard of each company out of the equation, Alphabet as a standalone operation is handily bigger than Apple. On the flipside, even a struggling Apple is producing a lot more free cash flow than Alphabet is, so maybe Apple should be valued higher even though it’s not.
The question to all of this discussion is: So what?
Jimmy Crack Corn, And I Don’t Care
A funny thing happened while a few too many people were watching the horse race between Alphabet and Apple heat up … the market fell 8% since the peak hit near the end of the year.
Oh yeah. The S&P 500 is also now down more than 10% from its July peak, and there’s legitimate talk about the onset of a new bear market.
Other than that minor matter, not too much has been going on.
I’m being facetious, of course. While short-term pullbacks are par for the course and analysts have predicted seven of the past four bear markets (yep, still being facetious), had more of us spent a little less time fixated on Apple’s horrifying tumble into second place we may have at least been able to sidestep a couple of setbacks for names we wish we’d dumped a few days ago.
The irony? Most traders have been so obsessed about AAPL being lapped by GOOGL that they failed to notice Apple shares may well be at a major bottom while GOOGL shares are vulnerable to a significant pullback.
The chart of AAPL tells part of the tale. While the past few weeks have been rough ones, it’s pretty clear the bulls are using an established floor at $95 as a line in the sand now.
A chart of GOOGL tells the rest of the story. It’s overbought, but perhaps more concerning is the fading amount bullish volume we saw on the way up. It suggests there’s not actually a lot of conviction to support the stock at this price.
Only time will tell if Alphabet pushes its way out in front of Apple in terms of size, but as it stands right now, that’s going to be an uphill battle.
Moral of the Story
The moral of the story is, at the end of the day it doesn’t matter if AAPL is bigger than GOOGL or if GOOGL is bigger than AAPL.
That lead won’t be held permanently, anyway.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
