Currently, Apple (NASDAQ: AAPL) is atop the throne as the largest company in the world. It leads second-place Nvidia (NASDAQ: NVDA) by $280 billion, but I don't think it will maintain its leadership position.
In the next five years, I think multiple companies will overtake Apple, but two picks are Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Amazon (NASDAQ: AMZN) . These two have a strong case for becoming larger than Apple, but it won't happen overnight.
Why am I bearish on Apple?
First off, let's talk about Apple. In my opinion, Apple is trading so high due to its past performance. If you look at the performance without the name attached, Apple isn't currently that great of an investment. If I approached you with a stock that posted shrinking revenue for five of the last seven quarters, and in the two quarters it delivered growth, the best growth rate was 5%, you'd probably pass. Throw in the fact that this company is trading at 34 times forward earnings, and you'd run for the hills.
But, because Apple is Apple, investors give it a pass. This won't go on forever, and eventually, something will give. This opens up a lane for Alphabet and Amazon to surpass it, as they still have multiple growth catalysts ahead of them.
Cloud computing is a huge part of Amazon's and Alphabet's investment thesis
While many think of Amazon as just an e-commerce channel, it's much more than that. Commerce businesses have notoriously low margins, so Amazon has multiple other divisions that help boost its profits. One of the fastest growing is its advertising services, which has been on fire over the past few years.
Another strong segment is Amazon Web Services (AWS), its cloud computing offering . AWS is the largest cloud computing business by market share but has recently delivered slightly less growth than its competition. However, AWS' growth has reaccelerated, which is a huge selling point for the stock.
Although AWS makes up 18% of Amazon's revenue, it accounted for 64% of its operating profit in the second quarter. Though Amazon's business is much broader than cloud computing, its cloud services are a massive part of the Amazon investment thesis. With the cloud computing market expected to expand from $680 billion in 2024 to $1.44 trillion in 2029, it has a huge demand wave pushing it.
An investment in Alphabet is also an investment in its advertising business. With ad revenue making up around three-fourths of total revenue, it's a huge part of its business. Many are worried its search engine dominance may come to an end with competitors like OpenAI entering the arena. However, I think these concerns are overblown, as it would require billions of people to change their habits very quickly.
I don't see that happening anytime soon, so I'm not concerned about some of the increased competition.
Another bonus for Alphabet is its cloud computing wing, Google Cloud. While Google Cloud isn't as big as AWS, it's still a big part of the growth story, as cloud computing is in huge demand thanks to the AI arms race.
Both Amazon and Alphabet have their primary businesses, but their cloud computing wings are huge reasons to consider buying the stocks. Apple doesn't have the same kind of growth catalysts pushing it, so don't be surprised if either of these two passes up Apple within the next five years.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keithen Drury has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, and Nvidia. The Motley Fool has a disclosure policy .
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