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Race for $2 Trillion Club Heats Up: AAPL, AMZN, MSFT in Focus

Radhika Pujara
·6-min read

The tech-laden Nasdaq index continues to gain despite the rising number of coronavirus cases in the United States. The index advanced 2.2% on Jul 6 — marking the 14th straight uptick in last 16 trading days. The figure also outperformed Dow Jones and the S&P 500, which gained 1.8% and 1.6%, respectively.

Notably, on a year-to-date basis, Nasdaq has gained 16.3%, courtesy of the technology stocks that have shown greater resiliency amid the coronavirus pandemic fueled by the work-from-home trend. The upside is anticipated to continue primarily owing to apprehensions of a second wave of COVID-19 with no vaccine yet in sight.

Broadly speaking, the green signals including rebound in manufacturing activity in June, improving consumer confidence, encouraging stimulus measures, and decline in unemployment rate, are expected to drive the momentum.

Moreover, technology companies, particularly cloud computing, Internet services and cybersecurity providers, are gaining from the ongoing work-from-home, online learning and telemedicine, remote health diagnosis trends. Further, rising demand for web-based services including e-commerce, contactless payment and delivery is a key catalyst.

These factors appear to have intensified the race to $2 trillion market cap with Microsoft MSFT, Apple AAPL and Amazon AMZN firmly in spotlight. Notably, each of the stocks already have a market cap greater than $1.5 trillion.

Thereby, iPhone maker, Apple and cloud computing stalwarts, Amazon and Microsoft, are primary challengers in the race to hit market cap of $2 trillion. Notably, shares of Apple, Microsoft and Amazon have gained 2.7%, 2.2% and 5.8%, respectively on Jul 6.

Year-to-Date Price Performance

Notably, each of the three stocks has outperformed the S&P 500 index on a year-to-date basis, as the chart below shows.



Apple Leading the Pack

Apple currently seems to be the contender likely to win the race to $2 trillion dollar market cap. The stock has returned 27.3% year to date, against the S&P 500 index’s decline of 2.7%. The company currently has a market cap of $1.62 trillion — currently the closest to $2 trillion mark.

Moreover, continued momentum in the Services segment, backed by stellar App Store sales and robust acceptance of Apple News App, Apple Music and Apple Pay, is anticipated to drive the company’s growth this year. Non-iPhone devices, particularly Apple Watch and AirPod, are other notable drivers in the long haul.

We consider that with its sustained focus on innovation and expanding product portfolio, this tech giant is poised to thrive in the remote-work world.

Additionally, the company is well placed to benefit from the upcoming 5G upgrade cycle. The iPhone-maker is likely to launch its first 5G-supported device later this year.

The Zacks Consensus Estimate for fiscal 2020 earnings has been revised upward by 2 cents to $12.32 in the past 30 days, suggesting year-over-year growth of 3.6%. The company currently carries a Zacks Rank #3 (Hold).

AWS & Prime Momentum Fueling Amazon

Strong adoption rate of Amazon Web Services (AWS) is aiding Amazon’s cloud dominance and is expected to instill investor optimism in the stock, which has gained 65.4% year to date. The company currently has a market cap of $1.53 trillion.

Moreover, AWS is gaining solid traction among healthcare workers, medical researchers, educational institutions and government organizations owing to coronavirus management measures.

Further, Amazon dominates retail space, which poises it well to capitalize on the ongoing e-commerce momentum spurred by the stay-at-home wave. The company is helping customers in staying safe at home with Prime courtesy of fast delivery services and strong content portfolio.

Also, expanding distribution strength and workforce, which are helping in addressing the overflowing online orders amid this pandemic, are major positives. Furthermore, robust Alexa skills and strong smart home product offerings are tailwinds for this Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for its 2020 earnings have been revised upward by 1.6% in the past 30 days to $19.99 per share. Moreover, current year sales indicate growth of 24.4% on a year-over-year basis.

Work-From-Home Push & Azure Momentum Driving Microsoft

Microsoft is riding on impressive Teams user growth led by coronavirus-induced work-from-home wave, uptick in Surface devices and significant demand for Windows 10 PCs.

Moreover, Azure’s expanding customer base remains a key catalyst. In fact, per Canalys data, Microsoft Azure’s market share increased from 15% in first-quarter 2019 to 17% in first-quarter 2020. Azure trails only AWS, which has lost ground in the cloud services market. This is evident from AWS’ market share of 32% in first-quarter 2020, down from 33% in first-quarter 2019.

These factors are expected to sustain the momentum in the stock, which has surged 33.6% year over year. Furthermore, this Zacks Rank #3 company, currently having a market cap of almost $1.6 trillion, is well poised to expand the total addressable market through acquisitions of GitHub and PlayFab.

The Zacks Consensus Estimate for fiscal 2020 earnings has moved north by a cent to $5.70 per share in the past 30 days. The figure indicates year-over-year growth of 20%.

Alphabet in the Fray

Alphabet’s GOOGL focus on innovation, artificial intelligence (AI), cloud, home automation space, strategic acquisitions and Android OS is driving growth. The company maintains dominant share in the search market.

Although its diversification strategy into cutting edge technology is a growth driver, these initiatives require significant investment and involve uncertain payback periods, which remain an overhang.

Moreover, higher dependence on advertising revenues (82% of first-quarter 2020 revenues) is a headwind.

Although a part of the trillionaire club, with market cap of $1.02 trillion, Alphabet is far behind Microsoft, Apple and Amazon in the $2 trillion race.

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