Apple Inc. (NASDAQ:AAPL), Alphabet, Microsoft, and Meta have all significantly outperformed the S&P 500 index over the past five years. While the S&P 500 delivered a total return of 94.60% over the past five years, Apple returned 108.60%, Microsoft 158.90%, Meta 185.45%, and Alphabet 219.93%. This outstanding performance highlights the highly attractive risk-return profile of these companies. This analysis will focus on Apple and Alphabet to determine which of these two companies currently offers a superior risk-return proposition. While Apple maintains broader economic moats, Alphabet provides investors with greater upside potential, resulting from its lower valuation and superior growth metrics. Alphabet currently trades at a P/E ratio of 23.65, significantly below Apple's 32.47, with diluted earnings per share growth of 22.21% (compared to Apple's 9.03%). Therefore, Alphabet currently presents lower downside risk and higher upside potential, making it a superior risk-return choice compared to Apple.

Given the strong competitive advantages of both Apple and Alphabet, their competitive positions within their respective industries, and robust financial conditions, analysts recommend overweighting both Alphabet and Apple in diversified portfolios. Both Apple and Alphabet possess significant competitive advantages that are crucial for their ability to maintain long-term competitive differentiation and preserve investor capital. Apple's competitive advantages include its proprietary ecosystem, strong brand value, and healthy financial position, which provide the company with economic moats. Alphabet's competitive advantages include its dominant position in search engines, brand value, massive data advantages, positioning in cloud services, and financial strength.

From a valuation perspective, Alphabet outperforms Apple. Alphabet currently trades at a forward P/E ratio (GAAP) of 23.65, while Apple's forward P/E ratio (GAAP) stands at 32.47. Additionally, Alphabet's TTM P/E of 7.72 is lower than Apple's 8.82, further indicating that Alphabet is a more attractive choice from a valuation standpoint. Alphabet is not only the better choice in terms of valuation but also in terms of growth: Apple's 3-year diluted EPS CAGR is 2.85%, while Alphabet's 3-year diluted EPS CAGR is 20.40%, indicating that Alphabet's earnings per share growth over the past three years has far exceeded Apple's. Furthermore, Alphabet's 3-year EBITDA CAGR of 14.31% significantly surpasses Apple's 3.24%, further supporting the analyst's investment thesis that Alphabet is the superior choice for growth.

Both Apple and Alphabet demonstrate strong profitability metrics. Alphabet's EBITDA margin (TTM) stands at 33.16%, while Apple's EBITDA margin is only slightly lower at 31.87%. These metrics indicate that both Alphabet and Apple maintain excellent competitive positions within their respective industries. However, Apple's return on equity of 149.81% significantly exceeds Alphabet's 34.83%, highlighting Apple's more efficient utilization of shareholder equity.

Both Apple and Alphabet represent excellent risk-return choices. One of the primary risk factors facing Apple investors is the company's dependence on the iPhone, which accounts for 47.40% of the company's revenue. Alphabet is highly dependent on its advertising business segment, which represents 73.98% of company revenue. In terms of revenue diversification, Apple is the better choice compared to Alphabet. However, it's worth emphasizing that Alphabet currently maintains a stronger cash position ($95.15 billion versus Apple's $55.37 billion) and a significantly lower total debt-to-equity ratio (11.48% versus Apple's 154.49%), making Alphabet investments currently slightly less risky than Apple investments. It's also worth noting that Apple's 24-month beta coefficient (1.12 versus Alphabet's 1.07) and 60-month beta coefficient (1.11 versus Alphabet's 1.01) are slightly higher, indicating that Apple investments are accompanied by higher volatility.

Alphabet's lower valuation and higher growth metrics suggest that the company offers greater upside potential and lower downside risk compared to Apple, further indicating that Alphabet currently presents a more attractive risk-return profile. Although Apple maintains broader economic moats than Alphabet, Alphabet is currently the slightly superior risk-return choice. This is primarily due to Alphabet's lower valuation (forward P/E of 23.65 versus Apple's 32.47) and the company's superior growth metrics (Alphabet's 3-year diluted EPS CAGR of 20.40% versus Apple's 2.85%). Given both Apple and Alphabet's solid financial positions, significant competitive advantages, and positive growth prospects, it is recommended to increase investments in both companies within diversified portfolios.