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To much fanfare, Alphabet‘s market capitalization topped $531 billion Tuesday, surpassing Apple’s $524 billion worth and making the Google parent the most valuable publicly-traded company in the world.
But heavy is the head that wears the crown. The history of the largest companies in the S&P 500 and their performance after taking the title indicates shareholders may want to take some profits.
The Leuthold Group’s Doug Ramsey notes when companies become the most valuable company in the S&P 500 and approach 4 percent of the benchmark’s market cap, their tenures at the top are very short-lived.
Source: The Leuthold Group
To be sure, Alphabet is not quite at that 4 percent index weighting threshold yet (it’s at about 3.3 percent ), but the idea is the same. When companies become this big it just becomes harder and harder to grow at a pace that will continue satisfy the giant expectations that come with being No. 1.
IBM held the No. 1 spot for a long time in the 1980s, but recent technology companies that became the most valuable, such asMicrosoft in the 1990s and Cisco 16 years ago, have given up the title rather quickly.
“It is going to be harder to hold on to the top position, given that a new technology can displace it,” S&P Dow Jones Indices’ Howard Silverblatt wrote in an email. It’s “not the old days of factories and plants with high capital needs for entry.”
Wall Street believes Apple will retake the crown later this year. The 12-month price target for Alphabet is $918, representing 14 percent upside a market value of about $632 billion, while Apple’s 12-month price target is $133, a 40 percent potential return that would put its market cap at $740 billion, according to FactSet.
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But many investors believe the breadth of Alphabet’s market dominance across multiple categories may give it the edge on Apple, which primarily only leads the smart phone hardware market.
“I’m not saying by any means Apple will go out of business, but with a decade parabolic rise, the tortoise just passed by the rabbit,” said Schaeffer Greenberg Advisors’ David Greenberg in an email. “Their business model is sound and they are incorporating their concepts into (areas) everyone who uses technology. Unlike Apple, who focuses on a section of the population who like niche products.”
Google’s CEO Sundar Pichai confirmed for the first time Gmail joined search, Android, Maps, Chrome, YouTube and Google Play as products with more than 1 billion monthly active users, according to a Factset transcript of the Alphabet earnings conference call transcript Monday.
“We think that Google has taken the lead and there is no turning back given the recurring nature of its business model, the fact that the company has 7 products with over one billion users each, and the culture to fund and seek out large new markets,” BGC Partners’ Colin Gillis stated in an email.
Social network sentiment data shows Alphabet’s market position in these areas is sustainable over the long-term. Google operates the No. 1 most talked about search engine, video site, and email program on social media, according to LikeFolio, a social media tracking firm.
“Google dominates a diverse and growing set of technologies with brands that are loved by consumers,” said LikeFolio’s Andy Swan. “Our data shows a consistency in both mention volume and positive sentiment across all Google-owned brands that leads us to believe Google’s dominance is likely to continue for many years into the future.”
Alphabet’s core business of internet advertising through its search engine is still growing rapidly. The company’s paid clicks number, a key metric that measures how often Google gets paid by advertisers, grew 31 percent year-over-year in the fourth quarter.
Google will capture $45.6 billion in search ad revenue in 2016, representing 55.6 percent of the search ad market worldwide, according to eMarketer. This is in contrast to Apple’s iPhone which is slated to have its first year-over-year decline in sales during the March quarter, according to a forecast by CEO Tim Cook during the earnings call.
“Alphabet today looks impregnable driven by the structural growth of mobile advertising and its omnipresence in our lives,” Chris Bailey of Financial Orbit, a U.K.-based investment research firm, wrote in an email.
—CNBC’s Giovanny Moreano and John Melloy contributed to this story.