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Business News/ Companies / News/  Apple and Google are winning big, but one is about to pull ahead
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Apple and Google are winning big, but one is about to pull ahead

While the two tech giants are each generating billions in quarterly earnings, Google parent Alphabet’s profit stream may be more durable in a rebounding economy.

File photo is the Google logo displayed at their offices in Granary Square, in London. (AP)Premium
File photo is the Google logo displayed at their offices in Granary Square, in London. (AP)

Apple Inc. and Google-parent Alphabet Inc. have each managed to make copious sets of obscene amounts of money in any environment — pandemic or not. But the paths for the two technology behemoths may start to diverge later this year.

Both companies reported blowout numbers late Tuesday that far exceeded Wall Street expectations. Apple posted adjusted earnings per share of $1.30, compared with an average analyst estimate of $1.01, resulting in a quarterly profit of $21.7 billion for the three months ended in June. Likewise, Alphabet generated earnings per share of $27.26, ahead of the $19.35 consensus, while generating net income of $18.5 billion for its second quarter. Shares of Apple fell in after-hours trading, while Alphabet’s stock climbed.

There’s a logic behind the reactions. No two tech giants are the same, and it comes down to their business models.

Take Apple. For all the talk about its software-and-services businesses, the company’s foundation still relies on the iPhone. Despite the strong sales results for this quarter, investors are already looking toward how its next smartphone lineup will do. The problem is, there may be little reason to upgrade. Earlier this month, Bloomberg News reported that Apple plans to launch four models in September with minor feature improvements and similar designs to last year’s. If true, it will be a big letdown compared with the current iPhone 12 lineup, which was the first from Apple with faster fifth-generation wireless capabilities.

And then there are the supply-chain complications. For the second quarter in a row, Apple executives said component shortages will hurt its results. The uncertainty around next year may already be contributing to the shares’ underperformance this year.

On the other hand, Alphabet’s primary business is more correlated to the economy in general than any particular product release. Because most of its profit streams come from its dominant search engine, it also has broad-based exposure. That means as reopenings continue in the coming quarters and the world returns to normal, Google’s advertising business should outperform.

Beyond digital ads, Alphabet’s Google Cloud offering is also thriving, with revenue growing 54% in the June quarter from a year earlier. The unit has gained a reputation for cutting-edge artificial intelligence tools and better integration with open-source software technologies than rivals. And while it is smaller than Amazon Web Services and Microsoft Corp.’s Azure, it has clearly become a viable third player. 

Of course, both technology companies are under regulatory scrutiny. Governments around the world are investigating Apple’s App Store business practices, while Alphabet has been sued by the Department of Justice and state attorneys general. These processes, however, will likely take time to come to a resolution.

Meanwhile, investors are focusing on intermediate business fundamentals, signaling that Alphabet stands on firmer ground relative to Apple. That seems to be a prudent choice.

Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron's, following an earlier career as an equity analyst.


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This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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Published: 28 Jul 2021, 06:19 AM IST
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