Google vs Apple Stock: An Expert Investor‘s Comparison on Which Is the Better Buy

As two of the world‘s tech elite, Google and Apple have rewarded investors handsomely over the decades. But after massive growth lifting their stocks to trillion-dollar valuations, the recent market downdraft has created new entry points at far lower prices for those considering buying shares today.

Let‘s explore both tech titans in-depth to weigh the investment case for each company‘s stock and decide:

  • Is Google or Apple the better buy right now as 2023 begins?

To tackle this question, we will compare these tech giants across a range of key criteria:

  • Founding stories and evolution
  • Financial performance trends
  • Products, services and market positions
  • Growth outlook and risks
  • Valuation and stock chart analysis
  • Total return forecast scenarios

By scrutinizing these facets thoroughly, you should gain clarity for making an informed decision between investing in the tech behemoth behind Android and Search…or the maker of the iPhone and Mac computers.

Let‘s dive in!

Company Backgrounds

First, a brief history on the roots of each firm and the seminal products fueling their rise…

The Google Genesis Story

Google began as a research project in 1996 by Stanford PhD students Larry Page and Sergey Brin. They had devised a new internet search algorithm called PageRank for ranking web pages by importance, which formed the foundation for what would become the Google Search engine.

After launching Google.com in 1998, usage exploded as its clean interface and relevant results won over users frustrated by rival search portals. By 2000, Google was handling 10,000 queries per day on a network of 10,000 computers (source).

Venture funding and rapid innovation followed. Google launched AdWords advertising in 2000 and AdSense contextual ads in 2003. These services let businesses target ads to searchers based on keywords, revolutionizing digital marketing.

Google eventually edged out Yahoo and Microsoft to dominate online search and search advertising. Other popular free products like Gmail, Maps and YouTube entrenched Google‘s standing as the internet‘s top services hub.

Behind superior technology and science-led culture guided by the "10 Things" manifesto, Google grew revenue over 100X from 2003 to 2022 while amassing $100+ billion in cash by its 20th birthday.

Now operating under parent company Alphabet, Google generates over 80% of revenue from advertising including Search, YouTube and display ads. It remains the world‘s most visited website with 92% global adoption (source). Google now stretches across cloud computing, smartphones, AI, self-driving cars and more as it evolves.

Apple‘s Journey to Tech Titan

Apple‘s origins trace back to high school friends Steve Jobs and Steve Wozniak selling blue boxes to hack telephone systems before co-founding Apple Computer in 1976. That same year, Wozniak invented the Apple I personal computer kit with Jobs securing venture funding and handling marketing.

After the DIY-focused Apple I, Wozniak engineered the Apple II in 1977 – a pre-assembled, mass producible PC for mainstream buyers featuring color graphics and gaming. With business software support, Apple II sales took off making Apple a market leader through the early 80s home computing boom.

But Apple wavered through the late 1980s and 90s as products like the Macintosh and Newton PDA struggled amid competition and lean financials before Jobs‘ 1997 return. He refocused Apple as a consumer/creative brand, launching the iMac in 1998 which revived revenue growth.

2001 marked Apple‘s true renaissance unveiling the iPod music player followed by iTunes digital music sales and the iPhone in 2007. Their fused hardware, software and services exemplified Apple‘s special sauce under Jobs. The 2010 iPad extended Apple‘s device ecosystem dominance and brand cachet.

Today Apple sits atop $300 billion revenues centered around iPhones earning 55% of sales, with Mac PCs, Wearables, Home products, and Services comprising the balance (source). Its premier brand commands immense customer loyalty worldwide.

Now let‘s see how their historical paths translate financially…

Financial Performance Comparison

We can discern much from studying tech leaders financial metrics over time. How consistent is their growth? What key trends stand out?

First let‘s examine historical revenue totals over the past 5 full years to gauge growth execution.

YearGoogle RevenueApple Revenue
2018$136.8 billion$265.6 billion
2019$161.9 billion$260.1 billion
2020$182.5 billion$274.5 billion
2021$257.6 billion$365.8 billion
2022$283.0 billion$394.3 billion
  • Apple Revenue 5-Year CAGR: 10.4%
  • Google Revenue 5-Year CAGR: 19.1%

Google has achieved faster sales expansion recently – albeit Apple generates over 30% higher absolute revenue. Both maintained impressive growth at their enormous scale.

Analyzing profits and margins also proves insightful:

||Google 5-Yr Avg|Apple 5-Yr Avg|
|-|-|-|
|Net Income Margin | 23% | 26% |
|Return on Equity (ROE)|30%|77%|

Apple‘s premium device pricing confers slightly higher profitability. More stark is Apple‘s far superior ROE demonstrating greater capital efficiency.

Now let‘s examine two key valuation ratios over the past 5 years to see when shares may have been relative "bargains" historically:

image

Google P/E Ratio 5-Yr Average: 29.2; Apple P/E Ratio 5-Yr Average: 22.7

Google PEG Ratio 5-Yr Average: 1.79; Apple PEG Ratio 5Yr Avg: 2.01

Based on these charts:

  • Google stock has generally traded at higher earnings multiples historically
  • Both P/E and PEG ratios for each company sit well BELOW respective 5-year averages currently after the 2022 tech decline

In other words, shares appear "cheaper" than usual by these measures – presenting a potential opportunity.

Now let‘s examine what‘s driving financials underneath and the outlook ahead…

Products, Services & Market Position

As famed investor Peter Lynch emphasized: "Go for a business that any idiot can run – because sooner or later, any idiot probably is going to run it."

Have Google and Apple built durable enough business models and competitive barriers to protect against idiot risk?

A few data points on their franchises:

Key Google Offerings

  • Search– accounts for majority of revenue via text and product listing ads. 93% global search engine market share.
  • YouTube– Over 2 billion monthly viewers. Just under 10% of Alphabet sales. Key growth driver.
  • Google Cloud Platform– #3 after AWS and Azure. Fastest growing among top 3 with 45% of cloud workloads vs 14% in 2017 (source).
  • Android OS– Over 73% global smartphone OS market share (source). Drives mobile search dominance for traction.
  • Other Bets (Waymo, DeepMind, Calico etc) – Generated $1 billion revenues in 2022. Potential emerging disruptors.

Apple Main Offerings

  • iPhone– Flagship product driving over 50% of Apple revenues in 2022. Ubiquitous among premium global smartphone installed base. 2022 Q4 sales -5% YoY showing maturity.
  • Services– Fastest growing segment with 18% sales CAGR since 2018. Includes App Store, AppleCare, Apple Music/TV/Arcade subscriptions. High-margin (72% gross margin).
  • Mac PCs – Around 10% of Apple revenues but crucial hardware pillar. New M-series chip driving upgrades. Q4 unit sales +23% YoY (source).
  • Wearables (Apple Watch, AirPods) – 13% of 2022 sales. Q4 growth at +12% YoY suggesting resilience.

Both technology leaders‘ core offerings hold defensible positions, though Apple arguably depends disproportionately on the iPhone juggernaut without an equivalent second pillar like Search/Google Cloud for Google.

Growth Outlook and Risk Discussion

With technology ever-evolving, forward-looking assessments prove critical. Utilizing a SWOT framework, let‘s examine the Strengths, Weaknesses, Opportunities and Threats impacting each stock‘s investment outlook.

Google SWOT Analysis

Strengths

  • Search/YouTube near-duopoly generating prolific cash flows
  • Wide competitive moats around cloud, mapping, mobile OS
  • Visionary investments maturing (AI/ML, quantum, self-driving cars)
  • Fortress balance sheet with $116 billion cash

Weaknesses

  • 98% advertising dependence invites risk as budgets fluctuate
  • Rising competition from TikTok and AI disruption in core search product

Opportunities

  • Cloud could grow into Google‘s next multi-billion dollar business
  • AI integration strengthens ecosystem defensibility
  • Healthcare tech ambitions gaining steam

Threats

  • TikTok siphoning YouTube ad budgets among younger demographics
  • ChatGPT search paradigm shift? Microsoft Bing deal poses threat

Apple SWOT Breakdown

Strengths

  • Gold standard brand in hardware and devices
  • "Ecosystem lock-in" converting iPhone users to Mac, Watch, AirPods etc
  • Walled garden driving recurring Services revenues at high margins
  • $170 billion cash stockpile to fund innovation and capital returns

Weaknesses

  • iPhone growth stagnating earlier than expected
  • Supply chain centered in China carries geopolitical and disruption risk

Opportunities

  • Rumored AR/VR headset could open new frontier
  • Autonomous electric car could enter massive TAM down road
  • Expand services ecosystem with new subscription offerings

Threats

  • Slowing hardware replacement cycles
  • Loss of China market foothold amid political tensions

Considering these factors, Google‘s threats seem more perilous currently while its opportunities appear greater than Apple‘s – though both companies retain impressive strengths to weather storms.

Valuation and Stock Analysis

With technology stocks enduring a historic drawdown in 2022, let‘s assess whether today‘s lower prices present a discounted opportunity.

First, examining the 5 year stock charts shows the severity of the recent retracement:

GoogleStockChart drawio

*Google shares peaked around $3,000 in late 2021 before sliding to around $85. The stock sits 65% below all-time highs.

Apple Stock Chart drawio

*Apple reached an all-time high over $180 per share in early 2022 before declining to current $135. Shares trade 28% off highs.

Next let‘s revisit key valuation metrics – P/E ratios and PEG ratios over 5 years:

Valuation RatioGoogle 5-Yr AverageAAPL 5-Yr AverageCurrent Levels
P/E Ratio29.222.7GOOG: 16.7
AAPL: 22.2
PEG Ratio1.792.01GOOG: 1.13
AAPL: 1.75

Recall tech stocks typically average P/E‘s in the high teens and average PEG‘s near 1.5. On both measures, Google and Apple trade below respective 5-year averages presently after the tech correction. By these multiples, shares may still merit consideration.

Finally, let‘s model out total return expectations under various scenarios to quantify upside/downside cases.

Total Return Projections

Google 5-Year Annual Total Return

Bear Case: -4%
Base Case: 12%
Bull Case: 25%

Apple 5-Year Annual Total Return

Bear Case: 0%
Base Case: 10%
Bull Case: 20%

Key assumptions:

Bear case = 25% share price decline + 1.5% dividend yield
Base case = 10% annual EPS growth + 1.5% dividend yield
Bull case = 15% annual EPS growth + 1.5% dividend yield

Note Google offers no dividend unlike Apple currently. But Google bull case factors greater expansion potential plus lower base.

The Verdict: Which is the Better Buy?

In this in-depth stock comparison, Google narrowly edges out Apple as the better investment today based on:

  1. Cheaper absolute and relative valuation multiples signaling possible underappreciation
  2. Earlier life cycle with grander growth frontiers across search, cloud, AI etc over next decade
  3. Limited hardware exposure reducing supply chain cost pressures
  4. Earlier stage emerging disruptive technologies that could reaccelerate growth

That said, Apple deserves investor attention following this deep top tech selloff given:

  1. Fortress premium brand and immense customer loyalty affording pricing power
  2. Services ecosystem buffering hardware sales volatility to an extent so far
  3. Potential catalysts on horizon with AR headset, autonomous vehicle pivots

In summary – owning BOTH diversified tech titans together seems prudent for investors wanting assets positioned for where the future is heading.

If picking just one single stock today however, we believe Google currently offers better risk-reward given more visible paths toward outsized upside. Its discounted valuation combined with its AI supremacy roles makes Alphabet our top tech conviction as 2023 dawns.

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