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Microsoft or Alphabet: The next $1trn company

David Brenchley  |  07 Sep 2018Text size  Decrease  Increase  |  
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Google, Amazon, Apple, Microsoft, share prices, valuations, US stocks

The two largest companies in the world recently became the first corporations to reach valuations in excess of US$ 1 trillion. Last week, Apple became the first to hit the milestone, currently with a market capitalisation of US$ 1.1 trillion.

In Tuesday morning trading, Amazon became the second in the elite club, before the stock pared back slightly to leave it, again, teetering on the brink with a market cap of US$ 973 billion.

Robin Geffen, founder and chief executive of UK-based Neptune Investment Management, expressed his surprise it took Amazon so long to reach the milestone. It won’t be long before Jeff Bezos’s behemoth permanently joins Apple.

So, how long until this duo becomes a trio – or more? There are a couple of US stocks that don’t have too far to go, while four others are halfway there. We profile those next in line for 12-figure valuations.

Microsoft: US$ 831 trillion

Microsoft floated on NASDAQ on 13 March 1986 at a modest US$21, valuing the profitable tech firm at just over $500 million. An investment then of $10,000 would now be worth almost US$ 17 million, according to Morningstar Direct.

The firm is a leading player in cloud technology thanks to its Azure platform and saw revenues rise 17 per cent in the previous quarter, year-on-year, to US$ 30 billion. In its last full year, it generated US$ 110 billion in sales

The stock is up around 20 per cent since early April to trade at US$108 currently. It needs a further 20 per cent rise to around US$ 130 in order to break through the US$ 1 trillion barrier.

Morningstar analyst Andrew Lange values the firm at around US$ 940 billion, with a fair value estimate of US$ 122 on the stock. Microsoft began paying a quarterly dividend in 2005 and, since that time, it has increased the payout every year bar one, 2010, meaning it’s a key player in US and Global equity income funds.

Alphabet: US$ 829 billion

Not far behind Microsoft is Alphabet, the holding company for search giant Google. In fact, some reports at the time suggested the pair had looked into a merger shortly before Google floated on 19 August 2004.

Google’s IPO was priced at US$ 85, giving it a valuation of around $23 billion. In the 10 years hence, the share price has grown 12-fold to $1,199; a $10,000 initial investment would now be worth nearly a quarter of a million dollars.

In order for the firm to hit the US$ 1 trillion mark, shares need to advance 18 per cent to around US$ 1,420.

The world leader in online search, with market share above 80 per cent, the firm generates strong revenue growth and cash flow, with its video streaming website Youtube set to contribute more and more to the top and bottom lines over the coming years.

Morningstar analyst Ali Mogharabi has a fair value estimate of US$ 1,300 on the company, valuing it at US$ 915 billion.

The underdogs

This list is dominated by US firms, with two State-side companies coming in next. Warren Buffett’s conglomerate Berkshire Hathaway is the only other listed entity that is valued in excess of US$ 500 million, at US$ 520 billion currently.

Facebook has had a tough year and has slipped below the half a trillion mark to trade at $494 billion today. Still, plenty of fund managers are sticking with the social media giant.

We then reach our two non-US corporates, though one is listed on the New York Stock Exchange. That is Alibaba, the Chinese e-commerce giant, which has a market cap of
US$ 422 billion.

However, it is beaten into fifth place of the most valuable companies in the world by compatriot Tencent. Despite shares today hitting a 13-month low as investors continue to turn bearish on the stock.

The share price has lost a third of its value – or US$ 200 billion – since early January. That leaves it valued at US$ 452 billion. Still, Morningstar analyst Chelsey Tam is bullish on the stock, with a fair value estimate of 590 Hong Kong dollars suggesting 88 per cent upside. That would translate to a valuation of US$ 823 billion.

 

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David Brenchley is a reporter for Morningstar UK.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is a Reporter for Morningstar.co.uk.

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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