Will Apple Be The First To $2 Trillion?

Apple

Remember the race to $1 trillion in market cap?

Back in August 2018, Apple became the first publicly-traded company to reach the mind-boggling, 13-figure mark. Less than two years (and a massive global pandemic) later, Apple is about halfway to the next checkpoint: $2 trillion.

Wedbush analyst Dan Ives has recently weighed in, saying that the Cupertino company may be the first of the FAAMG stocks to get there – remember, Saudi Aramco already IPO’ed at that size. A couple of years ago, I bet my money on a different horse.

Today, I look at the three most likely candidates to reach the $2 trillion valuation first, and what may push their stocks to those levels.

Apple: 5G and services

I can not disagree with Dan Ives on his optimism towards Apple’s services segment. Revenues have doubled since 2016, and at least one expert projects them to double again by 2024. Services are the beneficiaries of two key trends, one impacting the short term and the other, the long term.

Will Apple Be The First To $2 Trillion?

Daniel Martins

Remember the race to $1 trillion in market cap?

Back in August 2018, Apple became the first publicly-traded company to reach the mind-boggling, 13-figure mark. Less than two years (and a massive global pandemic) later, Apple is about halfway to the next checkpoint: $2 trillion.

Wedbush analyst Dan Ives has recently weighed in, saying that the Cupertino company may be the first of the FAAMG stocks to get there – remember, Saudi Aramco already IPO’ed at that size. A couple of years ago, I bet my money on a different horse.

Today, I look at the three most likely candidates to reach the $2 trillion valuation first, and what may push their stocks to those levels.

Graph of FAAMG stocks by market cap, Facebook Alphabet, Amazon, Microsoft and Apple
FAAMG by market cap, as of June 2020DM Martins Research, data from Yahoo Finance

Apple: 5G and services

I can not disagree with Dan Ives on his optimism towards Apple’s services segment. Revenues have doubled since 2016, and at least one expert projects them to double again by 2024. Services are the beneficiaries of two key trends, one impacting the short term and the other, the long term.

In the near term, the stay-at-home economy of 2020 has been all about increased usage of electronics for work and entertainment. The trend bodes well for services, something that was evident in Apple’s fiscal second quarter results.

Looking further in the future, service revenues will probably continue to be supported by Apple’s push to improve the ecosystem. The company has been aggressive at launching new services lately (Apple TV+, Apple News+, Apple Arcade, etc.), while the active installed base of Apple devices continues to grow. See chart below.

However, I would be a bit more cautious about the success of the 5G cycle for the moment. First, the impact of the upcoming recession on consumer discretionary spending later in the year remains a question mark. Second, the next iPhone launch could be delayed due to supply chain issues.

Apple’s installed base since 2016DM Martins Research

Microsoft: executing well on all fronts

The Redmond, Washington tech company has been on fire. Across virtually all its businesses, from office productivity to devices to cloud services, Microsoft has been growing at a robust and consistent pace. In the most recent quarter, the company produced “two years’ worth of digital transformation in two months”.

Will Apple Be The First To $2 Trillion?

Daniel Martins

Remember the race to $1 trillion in market cap?

Back in August 2018, Apple became the first publicly-traded company to reach the mind-boggling, 13-figure mark. Less than two years (and a massive global pandemic) later, Apple is about halfway to the next checkpoint: $2 trillion.

Wedbush analyst Dan Ives has recently weighed in, saying that the Cupertino company may be the first of the FAAMG stocks to get there – remember, Saudi Aramco already IPO’ed at that size. A couple of years ago, I bet my money on a different horse.

Today, I look at the three most likely candidates to reach the $2 trillion valuation first, and what may push their stocks to those levels.

Graph of FAAMG stocks by market cap, Facebook Alphabet, Amazon, Microsoft and Apple
FAAMG by market cap, as of June 2020DM Martins Research, data from Yahoo Finance

Apple: 5G and services

I can not disagree with Dan Ives on his optimism towards Apple’s services segment. Revenues have doubled since 2016, and at least one expert projects them to double again by 2024. Services are the beneficiaries of two key trends, one impacting the short term and the other, the long term.

In the near term, the stay-at-home economy of 2020 has been all about increased usage of electronics for work and entertainment. The trend bodes well for services, something that was evident in Apple’s fiscal second quarter results.

Looking further in the future, service revenues will probably continue to be supported by Apple’s push to improve the ecosystem. The company has been aggressive at launching new services lately (Apple TV+, Apple News+, Apple Arcade, etc.), while the active installed base of Apple devices continues to grow. See chart below.

However, I would be a bit more cautious about the success of the 5G cycle for the moment. First, the impact of the upcoming recession on consumer discretionary spending later in the year remains a question mark. Second, the next iPhone launch could be delayed due to supply chain issues.

Apple's active installed base since 2016
Apple’s installed base since 2016DM Martins Research

Microsoft: executing well on all fronts

The Redmond, Washington tech company has been on fire. Across virtually all its businesses, from office productivity to devices to cloud services, Microsoft has been growing at a robust and consistent pace. In the most recent quarter, the company produced “two years’ worth of digital transformation in two months”.

Microsoft would probably be my second pick at reaching the $2 trillion mark first. CEO Satya Nadella has been hitting one home run after another since he took over, in 2014. However, I believe Microsoft is more of a steady-pace grower that is best at execution, not as much the disruptive force that I believe Amazon to be.

While I think that Microsoft will get to $2 trillion within the next three years or so, I believe it will get there more slowly than the other two contenders.

Amazon: the disruption machine

Although Amazon is about $750 billion away from the $2 trillion mark, I think it can reach the goal first. The key reason: the e-commerce and cloud giant is the most aggressive of the FAAMG names.

Amazon does not hold back any punches when it comes to disrupting the industries that it operates in. If the company makes the right moves, it can reshape the retail, cloud and media landscapes. And when it does, the stock can leapfrog the rest of the Big Tech group.

What are your thoughts?

Of course, all of the above is pure speculation. 2020 is a particularly tough year to make predictions. Still, leave a comment below and share which US-based company you believe will be worth $2 trillion first.

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