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Apple versus Amazon.com: Which company will hit a market cap of US$1 trillion first?

Last updated: 15:19 23 Jul 2018 BST, First published: 20:19 20 Jul 2018 BST

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"I'm going with Amazon here," said Bill Baruch of Blue Line Futures. "I think Amazon is firing on all cylinders."

The fierce rivalry between Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) to win the contest to become the first company with a market capitalization of more than $1 trillion is taking off.

Investors got a chance to watch the intricacies of the battle from the sidelines last week after Amazon’s shares hit US$1,858.88, catapulting the company’s market share to a value of US$902bn.

The fervid run-up in Amazon’s share price came after the online retailer sold over 100mln products in less than two days during its Prime Day sale to rake in more than US$3bn, according to initial estimates. Indeed, it was sales of water filters, pots, Fire TV sticks and Echo dots that lit up Amazon’s stock.

Amazon is considered the dark horse in the race and its market share is still eclipsed by Apple’s, which hovered at about US$933.6bn on Friday afternoon.

Apple’s yearly revenue exceeds the GDP of a number of countries

Indeed, some market watchers remain convinced that Apple, which still has a roughly US$40bn or so advantage over Amazon in the contest, will prevail as its yearly revenue of US$229bn now exceeds the gross domestic products of the Czech Republic, Qatar and New Zealand, per a report in Reuters.

Apple’s market capitalization this year has been helped by a few victories. One of the biggest believers in the stock is Warren Buffett who went so far as to purchase an astonishing 75mln shares of Apple in the first quarter. The world’s largest company – which has a cash pile in excess of US$250bn – also greatly pleased investors when it announced a staggering US$100bn share buyback in its second quarter and hiked its quarterly dividend to US$0.73 per share.

“I think slow and steady’s going to do the trick,” said Apple fan Gary Kaltbaum, president of Kaltbaum Capital Management, in a television interview.

But Jeff Bezos is a shrewd operator and if Apple hopes to retain its status as the most valuable company in the world, it has to find a way to defend itself from the punishing Amazonian forces.

Amazon’s aggressive expansion set to push up its share price

Indeed, Amazon’s expansion efforts catapulted this year, with Bezos’s move to acquire the online pharmacy service PillPack. Shares of rival pharmacies capsized on fears that the Seattle-based e-commerce giant would disrupt the drugstore market in the same way it snuffed out brick-and-mortar bookstores.

Who is to say that Amazon won’t disrupt Apple’s efforts to remain at the top of the corporate pile?

Over the last calendar year, Amazon’s shares have soared 77% to hover at US$1,819 as this article went to press on Friday while Apple’s shares are up just 27% at US$191.88.

In a recent interview with CNBC’s Trading Nation, Boris Schlossberg, managing director of FX Strategy for BK Asset Management, backed Amazon despite the fact that Apple produces three times more cash flow and has more than US$250bn worth of cash on hand.

“Here’s the story,” Schlossberg said. “Amazon has a much stronger narrative. That’s the key thing. Investors are much more excited about Amazon’s business than they are about Apple’s business.”

“If Amazon can maintain its narrative, that’s really the key. If their earnings come in strong and everything looks very positive in terms of growth, investors will be pleased,” he added.

Bill Baruch, founder of the brokerage firm Blue Line Futures, is also supporting Amazon in the fight. “It’s like having to pick your favorite child, but I’m going with Amazon here,” he told CNBC. “I think Amazon is firing on all cylinders with its web services and prime memberships.”

The race is open to other competitors like Microsoft

There’s also a case to be made for other competitors in the contest. A second dark horse that could enter the race is Microsoft (NASDAQ:MSFT), which reported a market share of roughly US$813bn.

Earlier this year, Keith Weiss, a Morgan Stanley equity research analyst, suggested that the tech giant, which posted quarterly revenue of US$30bn last week, could also reach the $1 trillion mark due to its dominance in cloud computing.

“Strong positioning for ramping public cloud adoption, large distribution channels and installed customer base, and improving margins support a path to … a US$1 trillion market cap for MSFT,” Weiss wrote in a note to investors.

Microsoft’s advantage is that it looks set to maintain a big position in the public cloud market, which could well double in size to over US$250bn, according to Morgan Stanley’s estimates.

An upcoming exam for Amazon and Apple will be their quarterly performances later this month.

Apple will post its results on July 31 and Amazon will post its earnings on July 26. Microsoft, meanwhile, has already buoyed its investors’ spirits by reporting US$110bn in yearly sales for its 2018 fiscal year as part of its latest quarterly results.

-- Updated with revised share prices

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