These companies have a combined market value that is worth more than the London Stock Exchange; can any of them reach the next milestone of $2 trillion?
Aug. 1, 2020
What is it about the American garage that seems to be so essential to starting a successful business? Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), and Microsoft (NASDAQ: MSFT) were all started in garages and today are the biggest American companies in the world with a combined market cap of almost $5 billion. All three of these powerhouses were hardly affected by the pandemic, continue to power through, and are expected to keep going for years to come. The question on investors’ minds is: Will any of the companies reach a $2 trillion valuation?
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How they got there
All three are leaders in their respective sectors. Apple’s hardware innovation, software ecosystems, and marketing are unparalleled; Microsoft is the world’s leader in software and programming and Amazon, although not the biggest e-commerce company (it’s second to Alibaba (NYSE: BABA)), leads in cloud services. How did they reach such heights? Former venture capitalist Eric Feng has a theory that encompasses lower transactional costs and Intentional Short Circuits (ISCs).
Microsoft made strategic partnerships and bolstered relationships in the business; Amazon’s consistent business model is shaped around customer purchases; and Apple concentrates on only one platform which incidentally is on 70% of all devices. These are the companies’ ISCs and they all serve to lower transactional costs, save money, and facilitate business growth. Additionally, all three companies embrace an ‘atoms and bytes’ paradigm, meaning they don’t only cater to the online world; Apple is known for its insanely popular iPhone, iPad, and MacBook products, but it also caters to online services like music, OTT, and various subscription apps. Amazon offers e-commerce and Microsoft deals in software; they both also provide cloud services.
Which company will get to $2T first?
|Company||Date @ $1T||Market Cap (7/29/20) in $T|
I feel that Amazon is best equipped to reach the finish line first. Already the leader in cloud services, its revenue was boosted by stay-at-home orders during the pandemic, and its market place, as brick-and-mortar shops were shuttered. Additionally, it has an incredibly robust delivery and fulfillment infrastructure that helps make speedy deliveries for Prime members of which it boasts over 150 million and growing; Prime members spend double the amount of non-members on the site.
How will they get to $2 trillion?
Amazon is well on its way thanks to the pandemic, which will have long-lasting implications as retail stores close permanently, allowing the company to scoop up clients. The company’s cloud services grew during the pandemic, reaching $10 billion in revenue in its last quarter. Furthermore, the pandemic has permanently changed the office landscape with two-thirds of companies saying they will adopt a work-from-home policy at least in the long term, and that means more revenue for the cloud leader.
Microsoft’s Azure Cloud division is also benefiting from the outbreak; as one of the company’s leading growth drivers, Microsoft specializes in enterprise cloud infrastructure and has made partnerships to offer Linux and VMWare on its platforms. Wells Fargo (NYSE: WFC) analyst Philip Winslow feels that the company needs revenue growth of 14% in the next few years, EPS of 17%, and a 20% growth in its intelligent cloud segment. All numbers which shouldn’t be difficult to attain.
As for Apple, the most valuable company in the U.S., and the one that’s closest to the finish line, the 5G revolution will put it over the top and help it exceed a $2 trillion market. Additionally, Apple’s services revenue, which has grown over 160% in the last five years, is forecasted to reach $89 billion by 2025. Moreover, the company’s wearables division revenue is growing at a break-neck pace, already commanding a nearly 30% market share and is expected to reach $100 billion by 2030. Apple needs to reach a stock price of $461.89 per share to reach the thirteen-digit valuation, and it will get there thanks to the company’s continued stock buy-back program.
Amazon and Apple (along with Facebook (NASDAQ: FB), and Alphabet (NASDAQ: GOOG)), are undergoing an antitrust investigation, much like Microsoft had in 2001, but I feel that it will result in a fine tantamount to a slap on the wrist. All three companies are solid investments for the short term, thanks to the pandemic and the long term thanks to solid financials and continued innovations that will help them grow spectacularly.
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