The stock market has been on fire for the past decade. After bottoming out below 700 in early 2009, the S&P 500 has nearly quadrupled to over 2,600 today. That is a huge a run higher for stocks – particularly for tech stocks like Apple Inc. (NASDAQ:AAPL).
When you have a rally of that magnitude, however, valuations on stocks approach levels that have historically been unsustainable. For example, during the past two bull markets (late 1990s and the mid-2000s rally after the dot-com crash), five different U.S. companies reached the $500 billion valuation milestone… but none of them were able to sustain that $500 billion-plus valuation for long.
Now, five different U.S. companies all have a market cap above $500 billion. At the same time. In other words, what has only been accomplished by five other public companies in history is now being accomplished by five stocks all at the same time.
And the biggest one, Apple Inc., as had a $500 billion-plus market cap since 2012.
That is pretty impressive. But one thing the stock market hasn’t produced yet is it’s first trillion dollar U.S. company, even in AAPL stock.
Everyone thinks that Apple stock will be the first one to cross that milestone. After all, it’s a stable growth company with a huge moat and an $860 billion valuation. AAPL does look like the most likely candidate for the first trillion dollar company.
But there are a couple of other tech stocks in this race who could ultimately beat Apple to that mark, especially if this bull market that rewards growth over value persists.
Amazon.com, Inc. (AMZN)
The company most likely to beat Apple to the trillion dollar mark is e-commerce and cloud giant Amazon.com, Inc. (NASDAQ:AMZN).
Firstly, Amazon isn’t that far behind Apple in this race. Apple’s market cap is $860 billion. Amazon’s market cap is $690 billion. That means there is some catching up to do, but not much.
Secondly, Amazon is growing much, much faster than Apple, mostly thanks to Amazon’s bigger growth levers (e-commerce and cloud versus phone hardware). Amazon’s revenue growth rate last quarter was nearly 40%. Apple’s revenue growth rate last quarter was 13%. Amazon’s earnings more than doubled year-over-year last quarter. Apple’s earnings were up 16%.
Also, Amazon stock is rising in value much more quickly than Apple stock due to the growth discrepancies. Over the past 3 years, Apple stock is up 40%. Amazon stock is up nearly 300%.
And lastly, Amazon is still ramping in its growth narrative, whereas Apple is pretty much at the mountain top. Amazon is just beginning massive, market-shaking moves into offline retail, logistics, and healthcare. Each of those markets represents a separate multi-billion dollar opportunity for the company. Apple, though, has been subject to stagnant iPhone unit growth for the past several upgrade cycles.
All in all, if anyone is going to beat Apple to the trillion dollar mark, it is Amazon. The company is huge, growing quickly, still expanding its business, and a favorite of Wall Street.
Alphabet Inc (GOOG)
Outside of Amazon, the company most likely to beat Apple to be the first trillion dollar stock is digital search giant Alphabet Inc (NASDAQ:GOOG).
Like Amazon, Google isn’t that far behind Apple in terms of market cap. Google has a market cap of $720 billion versus Apple’s $860 billion market cap.
Also like Amazon, Google is growing faster than Apple. Google’s revenue growth last quarter was 24%, versus 13% at Apple. Google’s earnings growth was 28%, versus 16% at Apple.
And, again like Amazon, Google stock has been a much a bigger winner than Apple stock. Google stock is up 90% over the past 3 years, versus a 40% gain for Apple stock.
Most importantly, though, Google has its fingers in a whole bunch of markets which could become exceptionally valuable over the next several years. The company’s self-driving car unit, Waymo, is at the forefront of the overlap between ride-sharing and autonomous driving. Google Home is one of the biggest players in the smart home world. YouTube TV is one of the notable platforms that allows for over-the-top consumption of traditional TV. Shopping Actions is Google’s recent attempt to turn its search platform into an e-commerce marketplace. The company also operates one of the biggest and fastest growing public cloud businesses.
All together, if any one of those several catalysts takes off over the next several quarters/years, Google could easily become a trillion dollar stock rather quickly.
Alibaba Group Holding Ltd (BABA)
The last company that on this list of trillion dollar stock candidates is the Chinese version of Amazon, Alibaba Group Holding Ltd (NYSE:BABA).
Between Apple, Amazon, Google, and Alibaba, Alibaba is the fastest grower in the group. Thanks to booming tailwinds from the emergence and urbanization of China’s massive middle class, Alibaba has consistently posted revenue growth in excess of 50%.
Those sky high growth rates won’t come down much over the next several years because the company’s biggest tailwind (the urbanization of China’s middle class) should remain strong into the foreseeable future. After all, only 50% of Chinese consumers are on the internet, while annual household expenditure per capita hovers around $3,600. In the U.S., roughly 90% of people are on the internet, and annual household expenditure per capita hovers around $23,000.
Clearly, there is still much more room for China’s consumer market to grow to scale. As such, there is much more room for Alibaba to grow both its retail and cloud businesses.
Alibaba’s market cap is already at $460 billion. And the stock only trades at 34-times this year’s earnings. If 50%-plus revenue growth is indeed here to stay, then Alibaba could become a trillion dollar stock rather soon.
As of this writing, Luke Lango was long AAPL, GOOG and BABA.