The tech industry is vast, encompassing everything from consumer products like smartphones and video game consoles to artificial intelligence (AI), cloud computing, e-commerce, digital advertising, and a whole lot more. It has earned a reputation for rewarding innovative companies and their investors with consistent and significant gains over the long term, with the Nasdaq-100 Technology Sector up more than 150% since 2019.
As a result, it's no surprise many stockholders have dedicated substantial portions of their portfolios to the high-growth market. In fact, Warren Buffett's holding company Berkshire Hathway has invested nearly 50% of its portfolio in tech stocks, enjoying a 20% compound annual gain between 1965 and 2022.
So, it's not a bad idea to expand your position in tech and add some new companies to your list of holdings. Alphabet (GOOG 0.23%) (GOOGL 0.23%) and Apple (AAPL 0.50%) are two attractive options, among the most prominent names in the industry.
Let's look at these two businesses and determine whether Alphabet or Apple is currently the better tech stock.
Alphabet
Alphabet enjoyed a stellar growth year in 2023, delivering significant gains in its digital ad business and strengthening its position in AI.
In the third quarter of 2023, Alphabet posted revenue growth of 11% year over year, beating Wall Street forecasts by $980 million. The rise was mainly due to improvements in its advertising segments, represented by an 11% increase in Google Search revenue and 12% growth from YouTube ads.
The digital ad market is projected to hit $740 billion in 2024, with Alphabet responsible for about 25% of that. Popular brands like Google, Android, and YouTube attract billions of users, presenting almost endless advertising opportunities. Meanwhile, their popularity will likely prove useful as Alphabet expands in AI.
Last month, the company unveiled its highly anticipated AI model, Gemini. The new model is expected to be competitive with OpenAI's GPT-4 and could bolster Alphabet's venture in the market. With Gemini, Alphabet could create a more dynamic Google Search experience, more efficiently analyze video trends on YouTube, and improve its various productivity services.
Alphabet's free cash flow rose 29% over the last year to $77 billion. Alongside a powerful position in tech, the company has the financial resources to continue investing in its business and deliver significant growth over the long term.
Apple
Apple seemed to hit roadblock after roadblock last year. Its revenue dipped 3% year over year in fiscal 2023 as macroeconomic headwinds caught up with its business and led to declines in product sales.
Then, toward the end of 2023, the company was forced to pull its latest Apple Watches from U.S. shelves due to potential patent infringements. Meanwhile, the Chinese government increased restrictions on workers using iPhones. As a result, the tech giant is starting 2024 with its work cut out for it.
However, it's not all bad news. Apple's digital services segment, the second-highest-earning part of its business, has remained a bright spot. Services posted revenue growth of 9% for the fiscal year, significantly outperforming all other segments.
Meanwhile, Apple still achieved nearly $100 billion in free cash flow in 2023, proving it can overcome current headwinds and invest in its research and development. The company has some exciting developments in 2024, including venturing into the virtual/augmented reality market for the first time with a new headset and a gradual expansion in AI.
Apple remains one of the biggest names in tech, and I wouldn't bet against its long-term success.
Is Alphabet or Apple the better tech stock?
Alphabet and Apple are leaders in their respective industries and are part of the "Magnificent Seven" tech companies for a reason. However, just because a company dominates a market doesn't necessarily mean it's the right time to buy its stock.
Data by YCharts; PS = price to sales; PE = price to earnings.
These charts show Alphabet is the cheaper option based on three different valuation metrics. The Google parent's lower figures suggest its stock currently offers far more value than Apple. Alongside a better performance in 2023 and a firmer position in the rapidly expanding AI market, Alphabet is the better tech stock this month.
