Apple (ticker: AAPL) and Alphabet ( GOOG, GOOGL) are two of the biggest tech titans around, and they happen to compete for much more than smartphone market share. From large-capitalization institutional technology investors to average Americans saving for retirement, the fact is that AAPL stock and GOOG stock also go head to head for billions of dollars in investor capital.
In a universe where Apple and Alphabet were mutually exclusive investments, which stock would be the better buy? Here’s a look at how GOOG and Apple stock stack up as investments today.
The prospects for Apple stock. When you look at the merits of Apple shares from a fundamental perspective, there’s not much to dislike. They trade at just 16.7 times earnings — a steep discount to the 24.9 price-earnings ratio of the Standard & Poor’s 500 index — and it pays a nice 1.7 percent dividend.
On top of that, Apple has about $246 billion in cash on its books. That’s a nice cushion for investors looking for safety.
[See: The 25 Best Blue-Chip Stocks to Buy for 2017.]
But the biggest problem with AAPL stock has nothing to do with fundamentals or its balance sheet. It’s the absence of co-founder Steve Jobs, the creative genius whose shadow still looms large over the most valuable company on earth.
There’s no doubt that CEO Tim Cook has struggled to innovate since the icon’s death in 2011, introducing only one new major product line, the Apple Watch, since then. The Apple Watch has been a commercial disappointment, and to this day its revenue isn’t significant enough to be broken out as its own line item in quarterly financial reports.
The bottom line? Apple is all about the iPhone, which to the joy of investors is still a cash cow year after year. But Apple’s stubborn reliance on smartphones to carry its business in a sector notoriously susceptible to quick disruption isn’t reassuring.
Analysts estimate Apple’s revenue will grow by less than 6 percent this fiscal year. After a sales decline last year, Wall Street sees investors waiting until fiscal 2018 to see the company surpass its 2015 revenue number.
The prospects for GOOG stock.
Alphabet, the holding company formerly known as Google, has a much different stock profile than Apple does. Beginning with the fundamentals, GOOG stock carries a meaty P/E of 30 and pays no dividend. Despite being the second-most valuable company in the world next to Apple, Alphabet still appears to be in the late stages of its growth phase, while Apple is entrenched and perhaps fully mature.
GOOG doesn’t pay a dividend, but that’s because it still has growth prospects. It’s expected to grow revenue to $106 billion in 2017, up 18 percent from $90 billion in 2016. That wouldn’t be possible without reinvesting billions into its current business.
Investors in GOOG stock are getting one thing right now: a dynamite digital advertising company. Between Google and Facebook ( FB), marketers have nowhere else to go to advertise their products online, and that’s obviously a great dynamic for shareholders.
[Read: Uber IPO: Losing Luster After a $1.2 Billion Loss.]
Still, it’s true that Alphabet is even more one-dimensional than AAPL in that about 90 percent of its revenue comes from advertising; roughly two-thirds of Apple’s sales derive from the iPhone. However Google aggressively pursues new markets and ideas with incredible commercial potential. Some of its most promising projects today include self-driving cars, artificial intelligence, smart home products and an iPhone competitor dubbed the Google Pixel, its first ever Google-branded smartphone.
But at its core, Alphabet is still a best-in-class search company: Google has been the top search engine on the planet for nearly 20 years now. Many have tried and failed to compete, but none has been able to either match the quality of Google search or steal market share.
Verdict: Alphabet’s business is more resilient. At the end of the day, Apple’s cash hoard, brand, ecosystem, valuation and iPhone franchise make AAPL stock look like an attractive buy. But GOOG stock has a few major things going for it that Apple doesn’t.
First off, Google’s competitive advantage in search is immense, and it’s much more difficult to see a world where Google disappears than one where the iPhone does. Nearly 90 percent of smartphones on the planet run Google’s Android operating system.
Until someone comes up with a better product — and no one has in almost 20 years — Alphabet’s gem Google doesn’t stand a chance of being toppled. Meanwhile, the iPhone saw its first ever drop in year-over-year sales in fiscal 2016, and a brief look at the history of BlackBerry ( BBRY) shows how little insulation a popular phone has from competition.
Alphabet is still a growth company, and growth stocks, in contrast to value stocks can be more prone to overvaluation during market rallies. But over the long run, there’s currently no reason to believe that Google’s search engine will fall to competitors; Apple, on the other hand, has suffered a dearth of innovation and just caught a glimpse of the iPhone’s mortality during its first-ever sales slump.
With Alphabet also offering investors the chance to participate in technological revolutions like autonomous cars, AI and the smart home, GOOG stock has all the qualities of a long-term winner. Apple stock, which no longer has Jobs routinely pulling seismic innovations out of a hat, relies on a legacy product and tools of financial engineering like stock buybacks.
[See: 7 of the Best Stocks to Buy for 2017.]
In a world where you have to choose one or the other, GOOG or AAPL, Alphabet stock is the superior long-term play, and it’s still run by its visionary founders. That’s an asset Apple will never get back.
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Apple (AAPL) Stock vs. Alphabet (GOOG) Stock: Which is the Better Buy? originally appeared on usnews.com
