Amazon vs. Alphabet: The Race to Market Supremacy by 2025

Ten years ago, Amazon (NASDAQ: AMZN) had a market value of $140 billion. In contrast, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), the parent company of Google, was valued at over $355 billion, more than double Amazon’s worth.

Both tech giants have experienced significant growth in the past decade. Amazon’s stock has increased by 1,140%, resulting in a market cap of $1.98 trillion, while Alphabet saw a 525% rise, bringing its market cap to $2.02 trillion. This article examines how Amazon has closed the gap on Alphabet and considers if it can become the more valuable member of the “Magnificent Seven” by 2025.

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Image source: Getty Images.

Comparing Growth Rates: Amazon vs. Alphabet

From 2013 to 2023, Amazon’s revenue grew at a compound annual growth rate (CAGR) of 23%, while its net income surged at a staggering CAGR of 60%. This impressive growth was fueled by a thriving e-commerce platform, strong demand for Prime memberships, and rising profits from Amazon Web Services (AWS), which has become the largest cloud infrastructure provider globally.

The pandemic in 2020 notably accelerated Amazon’s growth, as lockdowns pushed more consumers online and companies adopted cloud services. However, Amazon faced a deceleration in growth as it began to compare against that extraordinary period. This trend continued in 2022 and 2023 as inflation and other economic challenges impacted consumer spending and forced many businesses to cut cloud costs.

Looking ahead to 2023 through 2026, analysts forecast revenue and net income growth for Amazon at CAGRs of 11% and 38%, respectively. Although e-commerce growth might face tougher competition from companies like Shein and PDD’s Temu, Amazon may balance this out with its expanding AWS and advertising segments. Furthermore, the rise of the artificial intelligence (AI) industry is expected to drive more businesses toward expanding their cloud infrastructure, as well as direct advertising on Amazon, leaving traditional platforms like Google behind.

Meanwhile, Alphabet’s revenue and net income rose at a CAGR of 19% from 2013 to 2023. This growth was attributable to strong sales in display and search advertisements, increasing popularity of YouTube, and an expanding Google Cloud platform. Alphabet has also bolstered its user base through subscription services and additional hardware sales.

The pandemic also affected Alphabet’s advertising segment in 2020, leading to reduced marketing budgets. Nonetheless, Alphabet compensated for this decline with growth in its cloud business. After a rebound in 2021, Alphabet’s growth plateaued in 2022 due to worsening economic conditions. However, in 2023, its ad revenue stabilized and growth resumed in subscription services and the cloud segment, benefiting from the expansion of AI.

Looking ahead, analysts predict Alphabet’s revenue to grow at a CAGR of 12% and net income at 18% from 2023 to 2026. Despite this stable outlook, Alphabet faces two major risks: the potential disruption from new generative AI search engines like OpenAI’s SearchGPT and possible regulatory actions from the U.S. Department of Justice, which could force the company to divest some assets after recent antitrust rulings.

Market Valuation Insights: Amazon Could Overtake Alphabet

Currently, Amazon’s stock trades at a forward price-to-earnings ratio of 33, significantly higher than Alphabet’s valuation of 19. This disparity reflects investor optimism regarding Amazon’s recovery in e-commerce and the growth potential of AWS within the growing AI sector. Conversely, Alphabet’s lower rating points to uncertainties posed by new AI competitors and ongoing legal challenges.

If both companies meet analysts’ expectations and maintain their current valuations by the end of 2025, Amazon’s stock may increase by 26% to $239, raising its market cap to $2.5 trillion. In contrast, Alphabet could see a stock increase of 16% to $190, resulting in a market cap of just over $2.3 trillion.

In essence, Amazon has a clear pathway to surpass Alphabet’s market cap by the end of next year if Alphabet continues to grapple with its current challenges. In my view, Alphabet will likely remain under pressure until it can convince investors of its higher valuation merits.

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John Mackey, the former CEO of Whole Foods Market, which is now an Amazon subsidiary, serves on The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is also a member of The Motley Fool’s board. Leo Sun has positions in Amazon. The Motley Fool recommends both Alphabet and Amazon, following their disclosure policy.

The views expressed here represent those of the author and do not necessarily reflect the views of Nasdaq, Inc.