Google (GOOG) and Apple (AAPL) are two of the world‘s largest and most prominent technology companies. Both have been tremendously successful, rewarding long-term shareholders nicely over the years. But when it comes to choosing between Google or Apple stock today, which is the better investment option?
In this in-depth analysis, we will compare Google and Apple across a range of key metrics to determine which stock appears more attractively valued and offers greater return potential for investors.
Brief Background on Google and Apple
First, let‘s provide some quick context on each company…
Google began life in 1998 as a search engine company. Today, the core Google search engine remains the company‘s most important product, handling trillions of searches per year. Google is now the world‘s largest internet advertising platform, helped by its dominance in search. Its Android operating system powers roughly 85% of the world‘s smartphones.
Beyond advertising and mobile OS licenses, Google generates revenue from other segments like its Google Cloud platform, Pixel hardware devices, YouTube video sharing service, and more. An alphabet holding company called Alphabet was created in 2015 to oversee Google and other technology investments.
Apple
Apple started in 1976 selling personal computer kits before launching the iconic Apple II in 1977. After a slump in the 1990s, Apple found new life with the return of founder Steve Jobs. It launched the iPod music player, iPhone smartphone, iPad tablet and various software/services like the iOS App Store and Apple Music streaming.
Today, Apple is the world‘s most valuable public company, thanks primarily to booming sales of its iPhone lineup. The services segment, which includes things like the App Store and Apple TV+, has become the company‘s new growth engine as device sales moderate.
Recent Stock Price Performance
After both hitting new all-time highs in late 2021, Google and Apple stock fell substantially in 2022 amid a broader selloff in technology shares. Heading into 2023, AAPL is down 27% from its peak while GOOG is off by 37%.
Apple Stock Price
AAPL shares traded above $180 in early January 2022 before declining severely over the next 10+ months. The stock bottomed under $130 in late October and has since rebounded a bit back to the mid $140s. Apple remains the largest publicly traded U.S. company by market capitalization at nearly $2.3 trillion.
Google Stock Price
GOOG stock similarly hit an all-time high around $3,030 in early February 2022 prior to its 20-for-1 stock split. Post-split, shares topped out around $152 and now trade for approximately $88. Alphabet‘s market cap stands at $1.1 trillion, making it the third most valuable U.S. public firm behind Apple and Microsoft.
Clearly both tech titans have experienced substantial valuation pullbacks over the past year. The key questions are whether the stocks are now at compelling entry points and which one looks the more attractive pick heading into 2023.
Financial Performance and Growth Outlook
In their most recent quarterly reports, Apple delivered strong earnings results while Alphabet disappointed investors with a second consecutive earnings miss…
Apple Q4 2022 Earnings
- Revenue: $90.1 billion (+8.1% YoY)
- EPS: $1.29 (+4.0%)
Apple topped analyst estimates for both sales and earnings. Importantly, growth re-accelerated following a lackluster Q3 report. Performance was driven by all-time revenue records from both products and services. iPhone sales led the charge again with a 9.7% increase. Wearables/accessories and services saw double-digit percentage gains. Gross margin held firm at 43.3%.
For fiscal 2023, Apple forecast solid revenue growth despite economic uncertainties. It expects growth to accelerate on a sequential basis in December quarter. New products like the iPhone 14 Pro lineup with dynamic island design, Apple Watch Ultra and AirPods Pro 2 with H2 chip have maintained demand.
Alphabet Q3 2022 Earnings
- Revenue: $69.1 billion (+6% YoY)
- EPS: $1.06 (-27%)
Alphabet suffered its second straight decline in quarterly profit with both earnings and revenue coming up shy of expectations. EPS dropped 27%. Revenue growth decelerated sharply from previous quarter‘s 13% pace. Management cited pullbacks in advertising spend by some advertisers.
YouTube ad revenue fell 2% while Google Cloud revenue grew 37%, though the pace continues to decelerate. Google search ads still managed a solid 4% revenue growth in the quarter. The strong dollar also impacted overseas sales growth. Operating margins narrowed both sequentially and annually.
For Q4, Alphabet guided for just mid single-digit percentage revenue growth, a big drop from 21% and 32% growth in the prior two Decembers. Profits are expected to decline again amid heavy investment spending in AI and cloud computing to spur future growth.
Competitive Positioning & Risk Factors
Both Google and Apple maintain dominant positions across their key markets. However, increasing competition always poses a risk factor that investors must consider.
Google Competitors & Risks
In online search, no company comes close to matching Google‘s ~90% global search engine market share. Google Chrome also claims a commanding 65%+ share of the internet browser market.
Potential threats in core search could emerge from AI chatbots like Microsoft‘s new Bing Chatbot that integrates OpenAI language AI. However, Google has invested heavily in AI and can leverage its own Google Assistant chatbot.
YouTube faces intensifying competition for ad dollars and viewer attention from social video apps like ByteDance‘s TikTok along with Meta Platform‘s Instagram Reels and Facebook Watch. However, YouTube still enjoys a massive user scale advantage.
Android OS is dominant in mobile, though Apple‘s iOS platform earns far higher profits from its premium device ecosystem.
In cloud services, Google Cloud is gaining ground on frontrunners Amazon AWS and Microsoft Azure but still lags distantly behind in market share.
Apple Competitors & Risks
The premium smartphone market is essentially a iOS/Android duopoly between Apple and Samsung. Apple holds a commanding share of premium tier smartphone sales in developed nations like the United States.
In tablets, Apple‘s iPad maintains strong market leadership although demand has cooled recently. Amazon and Samsung tablets are making some inroads.
Wearables is currently Apple‘s fastest growth category driven by success of AirPods and Apple Watch. However, competitors are proliferating.
Apple‘s services ecosystem ties users deeply into its world via things like iMessage, Apple Pay, Apple TV, Apple Music, and the iOS/Mac App Store. Competitors aim to disrupt this lucrative services layer.
Apple silicon chips power all Apple devices, offering industry-leading performance. Qualcomm remains a key Apple supplier for wireless modem chips.
Apple faces constant supply chain risks and shortages given how much hardware it produces and sells.
Growth Outlook & Total Return Profile
In recent years, much of Apple‘s growth has been fueled by booming iPhone sales. But with smartphone market maturation and lengthening upgrade cycles, Apple is seeking to replace lost device growth with expanding services and emerging categories like autonomous vehicles.
Wall Street analysts project average annual earnings growth for AAPL around 11% over the next 3 to 5 years according to Yahoo Finance data, a healthy rate for a mega-cap tech stock. Revenue is modelled to rise at about 7% annually over that timeframe.
Alphabet enjoyed terrific growth for years from its Google search advertising cash cow. However, changes to digital ad targeting and privacy have made monetization modestly tougher. Google‘s growth pace has clearly slowed over the past year.
Analysts forecast Alphabet‘s earnings per share to increase by an average of 17% annually over the next 3 years. Expected revenue growth stands at nearly 14% per year over that same 3-year stretch.
Apple offers a dividend yield around 0.6% with a cash-rich balance sheet supporting steady payout growth. GOOG does not pay a dividend since parent company Alphabet focuses on reinvesting for growth.
Both companies actively repurchase stock with Apple making huge buybacks while Alphabet‘s repurchases are also generous relative to earnings power. These buyback programs enhance investor returns.
Putting it all together, analysts have an average price target of $157 on Apple stock according to MarketBeat data. That represents potential upside of about 10% from current levels. For Alphabet, analysts peg reasonable valuation at $121 which would mean nearly 40% upside if achieved.
Valuation and Conclusion
Apple stock trades at around 24x forward earnings estimates, a notable discount to its 5-year historical average closer to 30x. GOOG shares trade for just 17x forward earnings guidance, also below its 5-year history.
By this traditional price-to-earnings measure, shares of both tech titans appear attractively priced considering the companies possess strong underlying fundamentals and solid multiyear growth runways.
In a nutshell:
- Apple is the safer, blue-chip growth stock anchoring portfolios
- Alphabet offers higher risk-reward upside potential
Ranking their investment appeal, Apple would rate as a firm "Buy" here while Alphabet merits consideration as a more speculative "Buy" for growth-oriented investors tolerant of some volatility.
While both stocks look primed for upside over the long run, Google parent Alphabet probably holds greater return potential percentage-wise owing to its much lower starting valuation and higher projected earnings growth rates.
