Will Alphabet Be Worth More Than Apple by 2025?

Alphabet‘s (GOOG 0.86%) (GOOGL 0.89%) market capitalization briefly eclipsed Apple‘s (AAPL -0.29%) several times over the past decade. But the last time Alphabet was more valuable than Apple was on Jan. 29, 2019, when Alphabet was worth $744 billion and Apple was worth $729 billion.

Alphabet is worth $1.97 trillion today while Apple is worth $3.3 trillion. Apple is now the world’s most valuable publicly traded company, while Alphabet ranks fourth on that list. Both tech titans have generated big multibagger gains, but could Alphabet perk up again and overtake Apple by 2025?

Image source: Alphabet.

The differences between Alphabet and Apple

Alphabet’s Google and Apple own the world’s two largest mobile operating systems, but their business models are different. Alphabet generates most of its revenue from Google’s advertising ecosystem, which includes its search and display ads, advertising network, and YouTube. It generates less revenue from its cloud, hardware, and subscription segments.

Apple generates about half of its revenue from the iPhone, while more than a quarter comes from the services segment, which houses its App Store and subscription services. The rest comes from its Macs, iPads, and other products.

How fast are Apple and Alphabet growing?

From fiscal 2018 to fiscal 2023 (which ended last September), Apple’s revenue grew at a compound annual growth rate (CAGR) of 8% as its earnings per share (EPS) rose at a CAGR of 16%. It experienced a major growth spurt in fiscal 2021 as it launched its first 5G iPhones, but its revenue slipped in fiscal 2023 when that 5G upgrade cycle ended, the Chinese market cooled off, and the pandemic-induced tailwinds for its Macs and iPads dissipated.

From 2018 to 2023, Alphabet’s revenue increased at a CAGR of 18% as its EPS grew at a CAGR of 22%. Its ad sales cooled off during the pandemic, but it offset that pressure by growing its cloud business. Its ad business subsequently recovered, but it slowed down again over the past year amid inflation, high interest rates, and other macro headwinds.

Both companies are ramping up their investments in the artificial intelligence (AI) market. Apple is integrating “Apple Intelligence” into its services to write and summarize messages, search photos and videos, and create images from text prompts. Alphabet has gradually been expanding its Gemini platform to handle more generative AI tasks.

Apple and Alphabet both returned a lot of cash to their investors as they expanded. Over the past five years, Apple bought back 14% of its shares as Alphabet reduced its outstanding share count by 11%. Apple also continued to raise its dividend annually, while Alphabet initiated its first-ever dividend earlier this year.

Why did Apple outperform Alphabet over the past five years?

Apple is growing at a slower rate than Alphabet, but it generated bigger gains over the past five years for three simple reasons. First, Apple’s premium appeal, pricing power, and low exposure to the advertising market insulated it from a lot of the macro headwinds for consumer spending. Google’s advertising business was more exposed to those economic challenges.

Second, Alphabet faces more long-term threats than Apple. Google is struggling to keep pace with OpenAI and Microsoft in the AI market, and OpenAI’s new ChatGPT search engine could challenge its core search engine. Google Cloud also ranks a distant third behind Amazon Web Services (AWS) and Microsoft Azure in the cloud infrastructure race.

Lastly, both companies are being scrutinized by regulators, but Alphabet arguably faces more near-term pressure. The U.S. Department of Justice recently ruled that Google had illegally monopolized the online search and advertising markets — and it could either break up the tech giant or force it to share more of its data with its competitors. Those threats are likely compressing Alphabet’s valuations and making it less appealing than Apple.

Could Alphabet be worth more than Apple by 2025?

Alphabet trades at just 18 times forward earnings, making it the cheapest Magnificent Seven stock. Apple looks a lot pricier at 28 times forward earnings.

From 2023 to 2026, analysts expect Alphabet’s EPS to grow at a CAGR of 20%. If it matches those estimates and maintains the same valuations, its stock could rise about 13% to $180 by 2025. That would boost its market cap to about $2.2 trillion.

From fiscal 2023 to fiscal 2026, Wall Street expects Apple’s EPS to increase at a CAGR of just 11%. If it meets those expectations and maintains its premium valuation, its stock could rise about 8% to $234 and boost its market cap to $3.6 trillion by 2025. But if it trades at the same forward multiple of 18 as Alphabet, Apple’s stock price would actually decline about 30% to $150 and reduce its market cap to $2.3 trillion.

So for now, it seems unlikely that Alphabet’s market cap can surpass Apple’s by 2025. But if Alphabet overcomes its near-term threats, it might just command a higher valuation and generate bigger gains than Apple over the next year. As for Apple, it will need to dazzle its investors with new products and services to support its higher valuation.

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. Leo Sun has positions in Amazon and Apple. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.