Too Big to Invest? Alphabet, Apple and Microsoft Just Kept Growing

Regular readers might remember that it took me a very long time, 17 years to be exact, before I bought my first US stock Starbucks Corp (NASDAQ: SBUX). A year later in 2018, I finally made my first investment in Apple Inc (NASDAQ: AAPL).

Given Apple’s historic achievement as the first $1 trillion company that year, the common sentiment among investors was, “It’s already so big, how much more can it grow?”

I must admit, I shared this sentiment.

Fortunately, I was sufficiently attracted to its growing and recurring Services revenue to initiate a small stake, a decision I’ve never regretted.

That said, there’s truth to the notion of slowing growth. Apple’s revenue compounded at an annual growth rate (CAGR) of 8% over the past decade, a far cry from the previous decade’s 36% CAGR.

Sheesh, what a frog I was then!

While Apple’s era of hyperbolic growth is likely over, its current growth rate remains impressive, especially considering it has more than doubled its earnings per share (EPS) since 2018.

How many companies that are much smaller than Apple can do that?

This experience has given me a new perspective. Titans like Apple, Alphabet Inc. (NASDAQ: GOOG), and Microsoft Corporation (NASDAQ: MSFT) can still provide good long-term returns.

Indeed, all three companies reported another quarter of growth in the past week.

Google Search and YouTube Ads still growing

Alphabet continues to defy the market’s concern about its advertising business being disrupted with a more than 12% year-on-year (YOY) growth in both Google Search and YouTube ads segments.

Additionally, the robust growth in Google Cloud, up 35% YOY to US11.3 billion, means it now contributes a double-digit percent to the total revenue.

While the market is buzzing about its AI developments, I see it as a long-term play. Given its strong cash generation from its core businesses, I’m confident that they can afford to invest in AI without sacrificing short-term profitability. The potential returns from these investments will materialise over time.

Microsoft Cloud continues to drive growth

Up 22% YOY, Microsoft Cloud registered a revenue of $38.9 billion, 59% of total revenue.

Just like Alphabet has a strong hold on search engine, Microsoft continues to dominate Productivity and Businesses segment, with Microsoft 365 commercial cloud revenue increased by 15% YOY.

While I see AI as a long-term growth driver for Microsoft, I must admit that I don’t feel a direct connection to it. Primarily because I am not an end user of Microsoft products – I am typing this post on a MacBook with Google Chrome.

Nonetheless, the numbers convinced me that Microsoft continues to be a good investment.

Apple’s strength is not its technology

“Knowing a lot about technology is often a great way to be a terrible investor in technology.”

I couldn’t agree more to the above statement from a Seeking Alpha’s article on Apple. While the iPhone has revolutionised the smartphone market, it is never the device that has the most advanced functions or features.

What impressed me is the user-friendly nature of Apple devices. The integration within the Apple ecosystem, combined with their exceptional reliability, has made them the default devices at home. This MacBook, for instance, has been a reliable companion for over nine years.

Hence, I am not concern about the technical aspects of its Apple Intelligence when compared to the AI development by Alphabet and Microsoft. While it might not be the best technically, Apple Intelligence is likely to provide a seamless user experience.

As discussed earlier, I was initially drawn to Apple’s growing and recurring Services revenue. This segment has continued its impressive growth trajectory, setting a new revenue record with a 12% YOY increase.

Now accounting for over 26% of Apple’s total revenue, Services has surpassed $25 billion and is well-positioned for further expansion as the installed base continues to grow.

Each of the above titans have their different investment merits. Currently, I am more attracted to Alphabet due to its current growth trajectory and relatively cheaper valuation. As such, I just added a few more shares yesterday.

Read more from source