This week's Barron's print magazine's cover story , written by my colleague Jack Hough , makes the case for Apple ( AAPL ) achieving $1 trillion in market capitalization - it is worth just $862 billion right now - and it seems the trillion-dollar game is tantalizing to many.
Sanderson concludes Apple has a good shot at one trillion in 2019, while the others may wait until 2021. If anyone's going to hit a trillion following Apple, he believes Alibaba has the best shot, perhaps in 2020.
That's rather surprising, he acknowledges, given Alibaba is the smallest equity in the group, at $439 billion, just below Tencent's $488 billion.
For Apple, Sanderson writes that he's "not yet declaring that proximity will guarantee that the company will be first to break through the $1 trillion valuation milestone."
He notes Apple "has become a product cycle company with heightened volatility on expectations surrounding current generation offerings," a contrast to Jack's contention in his article that Apple has become much more stable thanks to the rise of software and services revenue.
But in fact, he is the "We are most confident in the growth drivers behind BABA over all others in our illustration."
He states the case: If BABA exceeds the current consensus by 20% in CY18, grows EPS by 45% in CY19, has outlook for 40% in CY20 and maintains its 24x forward P/E then market cap could exceed $1 trillion in 2020.
He concludes what Apple needs, at the "current 13x forward earnings" multiple, is "9% growth in EPS for CY20 to achieve $1 trillion in market cap by 2020."
Alphabet, writes Sanderson, is the most undervalued of the group:
We think GOOGL has the most unrecognized value of the mega-caps. The stock trades at 22x group level earnings on CY18 consensus, but we believe there is significantly more value in the sum of the parts valuation for the assets within the holdings company. Based on current consensus at 17% EPS growth next year and current P/E of 22x, the stock could get to $860Bn market cap in 2019 (a 15% return in the stock). To achieve $1 trillion before 2020 would require another year of 18% EPS growth and maintenance of the current 22x P/E, which seems unlikely to us. At the same multiple of NFLX, we think YouTube would be valued at over $150Bn by 2019. Assuming $10Bn for Waymo, 5x sales for Other Bets and $96Bn in net cash, GOOGL's valuation could exceed $1 trillion by 2019 at 20x forward EPS for core Google. Alternatively, $1 trillion would be reached by 2020 at 18x forward EPS for core Google and all else equal.
As for Amazon, currently at $568 billion, "While multiple expansion could continue and accelerate valuation, we think it most likely that AMZN does not achieve the $1 trillion milestone until late 2020 or sometime in 2021."
As for Facebook, currently at $517 billion, "Without a strong ramp in messaging monetization, we think it most likely the company will exceed $1 trillion valuation sometime in 2021."
And for Tencent,
We think it's unlikely that Tencent maintains its P/E and becomes a trillion dollar company by 2020. We do think that achieving the $1 trillion milestone could occur by 2021 with a moderation in P/E to 30x, if the company beats consensus by 15% then grows by 35% for two more years."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.