Apple walked to $1 trillion. Amazon sprinted there

Amazon's share price has more than tripled in the last three years.
Amazon’s share price has more than tripled in the last three years.
(Richard Drew / Associated Press)

The United States went 242 years without a trillion-dollar company. Thirty-three days after getting the first, it briefly got a second.

And whereas Apple Inc. lumbered through the final stretch, needing 15 months to traverse the last $200 billion, Inc. covered that ground in a three-month sprint. The $435 billion in market value it has created in 2018 alone exceeds the value of all but five companies on the Standard & Poor’s 500 index.

Shares of Jeff Bezos’ online superstore rose as much as 1.9% on Tuesday, sending its capitalization above $1 trillion for the first time. Apple reached that milestone Aug. 2. Two other companies, Microsoft Corp. and Google parent Alphabet Inc., are within $170 billion of the goal.

Amazon’s stock did subside a bit from its high. The company finished Tuesday with a market value of $995 billion. Its shares were up 1.3% at $2,039.51.


“I never would have thought at $200 that this would be a $2,000 stock,” said Jason Cooper, a money manager who helps oversee $4 billion, including Apple and Amazon shares, at 1st Source Investment Advisors in South Bend, Ind. “At $300, I thought we missed the boat. Boy, was that wrong.”

Through trade wars, unprecedented market volatility, rising interest rates and stock market stress in China, Amazon’s share performance has been as close to straight up as could be in 2018. It’s had one down month — March — all year, with the average gain in the other seven standing at 9%.

It’s another display of might for technology companies grown on the West Coast, a cohort of megacaps whose relentless appreciation has come to be known as the FAANG rally. The quintet — Facebook Inc., Apple, Amazon, Netflix Inc. and Google — has created $2 trillion in equity value in three years.

From a valuation perspective, Amazon and Apple reflect distinct judgments about what constitutes value in the stock market. Apple may earn more than $58 billion in its 2018 fiscal year (which ends Sept. 29), the fruit of maturing franchises in mobile phones and personal computers, among other things. At about 19 times projected profit, the company is huge and also relatively cheap. Back out the $244 billion in cash and cash equivalents Apple had at the end of its fiscal third quarter and it’s even cheaper.

Seattle-based Amazon is a different animal, a retail behemoth that maniacally held down profit margins for all of its 24-year existence and is expected to earn a relatively paltry $8.5 billion in 2018. That’s good for a price-to-earnings ratio of 120 — a sign of the huge faith Wall Street puts in Bezos to execute over time.

“This is a company that has pioneered e-commerce and has visionary leadership — they’ve done an amazing job of dominating their niche and successfully expanding,” said James Angel, professor at Georgetown University’s McDonough School of Business. “It could be irrational. It could be the market getting carried away. But the market usually knows more than I know.”

For now, the rapid ascent is a validation of the growth-at-all-costs ethos that has defined Chief Executive Bezos’ vision. While the conversation around Apple has shifted from iPhones to sales of apps and music streaming subscriptions, Amazon has relentlessly expanded into new markets, from groceries to data centers. Amazon’s revenue is growing at a clip of more than 30%, more than twice the pace expected from Apple this year.

Of course, Amazon is the younger of the two. It was founded in 1994, a good 18 years after Apple. In addition to slower growth, the maturity of Cupertino, Calif.-based Apple shows in its governance, which is bent on returning profits to shareholders. Apple has doled out more than $275 billion as dividends and buybacks since 2012.

In contrast, Amazon, which has never paid out a cent through either route, generates relatively little in the way of profits and continues to invest heavily in its businesses. Capital expenditures, or spending on physical assets such as warehouses and equipment, jumped to nearly $12 billion in 2017, up from $7.8 billion the year before.

That spending has helped fuel growth in business such as Amazon Web Services, which is much more profitable than Amazon’s core retail operations. The company’s cloud-computing operations and other high-margin businesses such as advertising will account for about 22% of total revenue in 2018 and could generate as much as $45 billion in operating profit by 2020, Morgan Stanley said in an Aug. 29 research note.

Perhaps because of that, the retailer gets a slight edge in analyst adoration. Although its number of followers is roughly in line with Apple’s, the proportion of analysts saying buy Amazon is the highest among tech megacaps. On a scale from 1 to 5 where higher is better, Amazon has a consensus recommendation of 4.8. This compares with 4.7 for Google and Microsoft, 4.5 for Facebook and 4.1 for Apple and Netflix.

Other metrics paint a less divergent picture. Amazon and Apple are both trading in the neighborhood of 4 times sales, and using a valuation lens that adjusts the price-to-earnings ratio for the rate of earnings growth, the two are traded at about the same multiple.

Wittenstein and Wang write for Bloomberg.


3:25 p.m.: This article was updated with Amazon stock’s closing price.

11:55 a.m.: This article was updated throughout with additional information.

9 a.m.: This article was updated with background information.

This article was originally published at 8:45 a.m.