A recent report filed by Colin Gillis, an analyst for BGC Partners (BGCP), predicted Google (GOOG) would beat Apple (AAPL) to a $1 trillion market cap valuation. In the past decade, the two tech companies have overtaken all Silicon Valley competition, and solidified their top spots as industry leaders. Currently, Apple has a market cap of roughly $640 billion, while Google maintains a $370 billion valuation. If Gillis' prediction is correct, and Google reaches a $1 trillion valuation by 2020, it would represent unprecedented company growth of 170% in just over 5 years, an accomplishment not yet witnessed for mature companies.
In order to understand the magnitude of a $1 trillion market cap, let’s first put this figure into perspective. Only six U.S. companies have ever surpassed the $500 billion market cap threshold: Apple, Cisco (CSCO), ExxonMobil (XOM), General Electric (GE), Intel (INTC), and Microsoft (MSFT). Apple and ExxonMobil aside, these companies all reached the $500 billion mark during the Dotcom tech bubble (1997-2000). Hence, these tech giants benefited from a speculative, momentous stock market, whereas ExxonMobil's high valuation resulted from $150 oil prices of the mid/late 2000s. That said, Apple is actually quite unique in that its market cap reflects the company's gargantuan revenues and profits (roughly $63 billion last quarter alone). Thus, Apple's valuation is more fundamentally sound.
With this in mind, let's examine the actual value of $1 trillion. To put this amount of money into context, we must use macro measurements, and compare the relative market caps of Apple and Google to the GDPs of nations. Although they are currently valued at $640 and $370 billion, if Apple or Google were to reach the $1 trillion mark, they would be worth more than most countries (only 15 economies have higher GDPs). Think about this for a second, we're comparing tech companies to countries!
The case for Apple to reach a $1 trillion market cap is obvious: high margins, revenues, and profits. Additionally, Apple maintains arguably the most dedicated consumer following, as evidenced by recent excitement over its iPhone 6. Such popularity led Apple to report a 2013 annual profit of $37 billion, nearly triple that of Google. More impressively, Apple has generated vast incomes while only controlling 11.7% of the 2014 universal smartphone market. Although significant, this figure is down from 18.3% in 2011.
To contrast this decrease, Google’s Android operating system has only grown since 2011. Early on Google only controlled 36% of the worldwide smartphone market; that number now sits at 84.7%. However, Google has sacrificed profit margins for market share. Even with its massive consumer base, Google only managed $12.6 billion in 2013 profits, the majority of which was from search advertising.
Nevertheless, Google is famous for performing in several different sectors. According to Gillis, Google will become the most valuable company because of its resource diversification, “the company is taking the cash flows from its performance marketing business (the best in the world in our view) and chasing after large markets such as content, operating systems, enterprise computing, robotics and automation.” Although many of Google’s projects are still in their infant stages, once they develop and become profitable, Google's net income could skyrocket.
Apple and Google are extremely profitable and battle tested. While Apple specializes in high quality products, Google focuses on cross-sector development. It remains to be seen which business plan will lead to a $1 trillion market cap, but for now Apple is in the driver's seat.