The company has experienced significant growth over the past six months.
The list of companies with a market capitalization of $1 trillion is très exclusive -- but is there a club for those reaching $5 trillion? Technically, no, as it includes just one member: Nvidia.
Yet some aren't far behind. One of these is Alphabet, the parent company of Google, which currently has a market cap of $3.4 trillion. Could it be the next to reach $5 trillion?
The case for Alphabet
Alphabet isn't nearest to the $5 trillion mark at the moment. Aside from Nvidia, which once hit that figure but is now worth less, Microsoft and Apple are both ahead. Microsoft boasts a market cap of $3.7 trillion, while Apple stands at $3.9 trillion.
It's also pertinent to mention Amazon, valued at $2.4 trillion and potentially capable of catching up, should it gain substantial market value while peers stagnate over the upcoming years.
There are compelling reasons to believe Alphabet could match, if not exceed, Amazon in performance moving forward. Both companies are frontrunners in the cloud computing arena. While Amazon has a larger market share, Alphabet's cloud division is experiencing faster growth in sales.
The rest of their business operations clearly favor Alphabet due to its higher margins.
Although Amazon generates greater sales, Alphabet enjoys higher profits and better margins. Moreover, despite challenges from AI chatbots, Alphabet remains the undisputed leader in search.
The company has undertaken measures to counter threats from AI, including integrating AI summaries and an AI mode within its renowned search engine. Additionally, Alphabet mitigated a significant risk this year by maintaining control over its Chrome browser, crucial for its advertising business, in an antitrust lawsuit. From my perspective, Alphabet has enough momentum to maintain its lead over Amazon in the upcoming years.
And what about Apple? Despite the tech giant's recent financial results surpassing expectations, it faces considerable challenges.
The evolving tariff landscape remains a potential threat that could negatively affect Apple's share price, given its heavy reliance on manufacturing in China, a nation targeted by tariff policies. Furthermore, while Alphabet is already reaping rewards from its AI strategy, Apple lags behind similarly sized tech rivals.
Alphabet's AI-powered capabilities through its cloud division, AI summaries, AI mode, and algorithms enhancing YouTube engagement (resulting in increased ad revenues) serve as significant growth drivers. Hence, Alphabet could outshine Apple and reach the $5 trillion mark first.
Consider Microsoft. Both companies are prospering in the cloud and AI domains. Arguably, Microsoft has a slight advantage over Alphabet in these sectors. Nonetheless, when evaluating traditional valuation metrics, Alphabet appears more reasonably valued.
This is one factor that might propel Alphabet past Microsoft to become the next $5 trillion corporation.
The critical question
Predicting outcomes is inherently challenging. Numerous factors could influence whether Alphabet achieves a $5 trillion market cap or if another company gets there first in the next 12 months.
The pertinent question is whether Alphabet will perform well enough to be the next company to achieve this milestone. Yet, more crucially, is the stock worth holding for long-term investors, regardless of short-term developments? In this regard, Alphabet appears to be an excellent choice. The company leads in multiple sectors, with substantial growth prospects in digital advertising, cloud computing, AI, and streaming.
The tech giant also ventures into innovative and potentially transformative new areas, like self-driving vehicles. Additionally, Alphabet benefits from a robust competitive edge, driven by its renowned brand, switching costs in cloud computing, and network effects in internet search.
Following the resolution of a significant antitrust threat, Alphabet's future looks brighter than ever. Considering all factors, Alphabet seems to be a strong buy, even if it doesn't become the next $5 trillion company.
