Apple (AAPL +1.08%) has been one of the most popular stocks in the market for a decade, and many investors have called it a foundational stock that every investor must own. I'm not a huge fan of Apple's stock, and I believe there are far greater choices than Apple to add to a portfolio.
The biggest company that I think investors should add to their portfolio over Apple is Alphabet (GOOG +1.00%) (GOOGL +1.11%), Google's parent company. I can think of three reasons why Alphabet is a far better purchase, but there are likely many more that set Alphabet apart.
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1. Alphabet's growth rate is higher
When assessing stocks, the first stat that I usually look at is the growth rate. While this isn't everything, it allows me to understand what kind of business I'm looking at. When I assess Alphabet, I see a company delivering consistent low double-digit revenue growth, which tells me it's a steady grower, but still delivering market-beating growth. For Apple, I see a company that's barely growing above the rate of inflation and is coming off multiple quarters of revenue shrinking.
GOOG Operating Revenue (Quarterly YoY Growth) data by YCharts
From this standpoint, Alphabet is a far more attractive investment, but revenue growth isn't everything for these two. Both companies are mature, so earnings-per-share (EPS) growth should also be considered.
From this standpoint, Alphabet is light years ahead of Apple. Apple can't grow its EPS above 10% per quarter, which means it will likely grow slower than the broader market.
GOOG EPS Basic (Quarterly YoY Growth) data by YCharts
As a result, Alphabet looks like a far better company when growth is considered.
2. Alphabet is innovating
One of the biggest areas tech companies are investing heavily in is artificial intelligence (AI). However, Apple is a notable exception. Its Apple Intelligence (Apple's take on AI) products are well behind its primary competitors, and the company has failed to launch any game-changing features. Furthermore, Apple's sales rely heavily on iPhones, which haven't seen much innovation over the past few years.
NASDAQ: AAPL
Key Data Points
On the flip side, Alphabet is still innovating. It's at the forefront of AI technology, heavily investing to ensure its tools are among the best available for users. Alphabet is also innovating in other industries, such as with Waymo, its self-driving car start-up.
No matter how you look at it, Alphabet is still evolving and growing as a company, while Apple still looks like the same business it was three years ago. This shows up in the growth rates, and it is another reason why I favor Alphabet stock over Apple.
NASDAQ: GOOGL
Key Data Points
3. Apple's stock is far more expensive
Although I've painted Alphabet as much more attractive than Apple, the market does not see it that way. Apple's stock trades at a far higher premium than Alphabet's, and Alphabet's stock is actually cheaper than the S&P 500 (^GSPC +1.01%), which trades for 22.8 times forward earnings.
GOOG PE Ratio (Forward) data by YCharts
This makes Alphabet's stock not only attractive compared to Apple, but also more attractive than the broader market, as it's growing at a far greater speed than the market historically has.
Alphabet is a fantastic stock to buy, as it is still innovating, which shows up in its earnings and revenue growth rates. However, the market doesn't value the stock highly, which is an excellent opportunity for investors to buy shares while they are beaten down.
