The Race to $1,000: Apple vs. Google

Google (Nasdaq: GOOG) and Apple (Nasdaq: AAPL) are two of the biggest names in tech and investing right now. And both have grown by leaps and bounds in recent years. In fact, shares in both companies could realistically break the $1,000-per-share price point sometime soon. But which one stands a better chance of getting there first?

Breaking it down
Obviously, we're dealing with two companies that have grown faster than the majority of their peers. Google stock has appreciated at an annualized 14.8% clip for the past three years, and Apple stock has gone up at an amazing 53.1% rate annually during the same period. That said, it never hurts to be conservative. Let's see how long it would take for these companies to reach $1,000 per share if they grew at a more modest 10% per year.

Source: Author's calculations.

Not long at all! We can expect shares in both companies to break the $1,000 level within five years if we assume only average returns. Apple has further to go, clearly, but considering the way it's been growing recently, we shouldn't write it off just yet. First, though, let's look at the case for a Google victory.

The case for Google
From a Foolish point of view, we should remember that stock prices are meaningless without considering what they say about the market cap. If shares in Company X are $100 a share, but there are two outstanding shares, then the company is only worth 200 bucks. If shares in Company Y are $10, but there are 100 million shares outstanding, you're looking at a billion-dollar company.

So, since Google approved a possible stock split some months ago, we'll be looking at the likelihood that it gets to a split-adjusted price of $1,000 a share, which would equate to a market cap of nearly $326 billion. A $326 billion company is massive, but it's just a bit more than half the size of Apple today. This works to Google's advantage in the race: The larger a company is, the harder it becomes for that company to grow, because it takes such substantial events to move the needle. With Google's acquisition of Motorola Mobility, the improving YouTube format, and many other projects, not only is Google closer to $1,000, but it can also get there more easily than Apple.

The case for Apple
Apple, which is the largest company since Microsoft (Nasdaq: MSFT) in the late '90s, and -- depending on how you measure it -- the largest in the history of the world, may have some difficulty reaching the nearly $1 trillion market cap required for it to achieve the $1,000-per-share mark. I'm not saying that achieving a $950 billion market cap is impossible, but it won't be easy. After all, when Apple gets to those levels, it will be bigger than the 2011 GDP of 94 countries -- combined -- with about $25 billion to spare.

There's a reason the legendary David Einhorn took a bullish view on Apple, saying it could be the world's first trillion-dollar company. I mean, Apple sold 5 million iPhones in a weekend and investors were actually disappointed. In terms of market cap, there's no one else in Apple's league. Apple is the most valuable company in the world by more than $200 billion (the next largest is ExxonMobil). Apple, Google, and PetroChina (NYSE: PTR) are the only three companies in the world with valuations over $200 billion and sales growth above 20% annually in the past five years.

PetroChina itself was worth $1 trillion for a very short time, but at a 55 P/E, it was fleeting, and shares eventually came crashing back down to Earth.

So a couple of things are working in Apple's favor: It pays a (modest) dividend, which makes shares more attractive to institutional investors, who own nearly 70% of outstanding stock. And it has products such as Apple TV yet to be released in its pipeline, just a single-digit market share in India's smartphone market (so lots of room to grow), and a rabid fanbase of iFanatics who will buy just about anything the company releases.

Keep in mind ...
Though these massive companies certainly have been good investments, the fact remains that (a) the race to $1,000 is somewhat (OK, entirely) arbitrary, and (b) smaller companies can grow more quickly than bigger ones. Though $31 billion isn't necessarily small, it's much smaller than the behemoths we've been discussing, and it happens to be priceline.com's (Nasdaq: PCLN) market cap. Not only has revenue grown more than 30% annually over the past five years, but EPS has also grown 65% a year over the same period. As a matter of fact, with shares over $600, it may give Apple and Google a run for their money in the race to $1,000.

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