How much is a great brand really worth? It’s a question that investors should care about, because strong brands can translate into strong businesses, which, in turn, can lead to strong stock performance.
So, let’s examine some of the companies with the world’s top brands to discover how valuable those brands truly are, and whether those stocks are a buy right now.
Image source: Getty Images.
Exploring the Top Brands in the World
The consultancy Brand Finance releases an annual list of the 500 top global brands, and these four companies top the list:
| Company | Brand Value |
|---|---|
| Apple | $517 billion |
| Microsoft | $340 billion |
| Alphabet (Google) | $333 billion |
| Amazon | $309 billion |
The experts at Brand Finance use a variety of measures to calculate a brand’s value, including:
- Marketing investment: Marketing factors that increase brand loyalty and market share
- Stakeholder equity: Perceptions of the brand, particularly among consumers
- Business performance: Financial measures that convey sales volume and pricing power.
The rankings indicate how successful brands are at attracting consumer attention, generating sales, gaining market share, and leveraging pricing power.
Consider Apple, the company at the top of the rankings. Brand Finance estimates that the brand value of the Apple name increased a whopping 74% in the last year to $516 billion.
“According to our research, more than 50% of respondents recognized Apple as expensive, but worth the price, reinforcing the brand’s ability to demand a price premium,” it wrote.
It’s clear: Powerful brands are a positive for businesses. But are the stocks behind those top brands worth buying?
Assessing the Investment Potential
Let’s start with Apple.
It isn’t just the most valuable brand in the world, it’s the most valuable public company, too. With a market cap of $3.3 trillion, Apple tops its nearest rival by some $200 billion.
However, the company has its problems. For one, sales of Apple’s signature product, the iPhone, flattened in recent years. The company still sells hundreds of millions of iPhones per year, but it appears to have saturated the market. Consequently, Apple must rely on price increases or sales of other products and services to deliver revenue growth.
On the plus side, the company’s services division has racked up significant revenue growth in recent years, lifting the company’s year-over-year revenue growth rate to 5%. Nevertheless, that’s a significantly lower growth rate than some of its top competitors, which is why I remain lukewarm on Apple stock.
I’m far more bullish on Microsoft (NASDAQ: MSFT), and here’s one big reason why: When you compare the two companies’ revenue growth over the last three years, Microsoft blows Apple out of the water.
Microsoft has averaged nearly 14% revenue growth over the last three years; Apple has averaged about 4%. If that trend holds, Microsoft will begin to close the still-sizable gap in revenue between itself and Apple. It will also likely mean Microsoft will once again pass Apple to become the world’s most valuable company.
At any rate, Microsoft’s investments in the cloud computing industry are paying off and delivering big revenue growth right now. What’s more, its forays into artificial intelligence (AI) could deliver another big boost in the future, as AI truly gets rolling. That’s why I favor Microsoft stock over Apple right now.
Then, there’s Amazon (NASDAQ: AMZN). Similar to Microsoft, Amazon is a huge player in the cloud services market, and that business has provided a big lift to its top line. Amazon’s revenue growth has averaged 11% over the last three years. Its strengths lie in rapidly growing fields like cloud services, AI, and robotics.
That’s to say nothing of its huge e-commerce business, which has become more efficient thanks to timely infrastructure investments. In short, I’m a longtime fan of Amazon stock and see no reason to change that opinion.
Last, there’s Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), the parent company of Google. Granted, Alphabet has some challenges to overcome: AI could very well change how people search the internet, and the company has been charged with monopolistic behavior in a federal antitrust lawsuit.
However, neither of those concerns is new. The antitrust lawsuit was filed in 2020, and it will likely take years before it’s fully resolved.
As for AI eating Google Search’s lunch, it is a threat, but it’s not as though Alphabet isn’t aware of it. The company is hard at work on its own AI-related projects and tools. Indeed, far from ending the company’s dominance of search, AI innovation might help the company find new ways to add value to its suite of online applications.
In summary, each of the top brands is backed by a solid stock, albeit with its caveats. Amazon and Microsoft are my favorites due to their rapid growth, while Apple and Alphabet remain stocks worth watching.