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Why Alphabet, Facebook will be very, very different in 10 years

As the landscape for technology rapidly transforms, Facebook and Alphabet will be very different in 10 years, says one analyst.

Youssef Squali, managing director and global head of internet and media equity research at Cantor Fitzgerald, told CNBC's "Power Lunch" on Wednesday that there was a very good reason why Google changed its name to Alphabet.

"Alphabet now is more than just Google," Squali said.

The question for the future of big tech names like Alphabet and Facebook, he said, is whether the investments they are making today will have a positive return on investment, and if they will be able to generate the type of profits that they are producing now.


Facebook CEO Mark Zuckerberg
Getty Images
Facebook CEO Mark Zuckerberg

While the search engine Google continues to be a large portion of the company, Squali noted that the nonsearch business is also growing significantly. This includes such initiatives as YouTube and its DoubleClick Bid Manager for advertisers.

Squali estimated that nonsearch already represents a $10 billion portion of the business that did not exist six years ago.

He added that Google is in a very unique position compared to companies like Microsoft. If a customer is not happy with using the Google search engine, they can simply switch to a competitor like Yahoo or Bing with no effective cost to the customer. However, that is not true for a piece of Microsoft software, he said.

Media analyst James Dix of Wedbush Securities also questioned whether Alphabet's growth will be sustainable for the future.

"With Alphabet you have a company which is 90 percent market share in mobile search. That is a great place to be right now. But in 10 years, what's mobile search going to look like?" Dix asked on "Power Lunch."

With the first half of 2016 in the rearview mirror, investors are now on the hunt for growth. This was evident in the signs of rotation as the metals, financial and technology segments have become the new leaders of the market, and utilities, telecom and consumer staples have lagged. Alphabet was up almost 4 percent for the year as of Wednesday.

What stood out to Squali about recent earnings for Alphabet, Amazon and Facebook, was that the growth rate of these technology giants has accelerated in the last couple of quarters.

"That is very unusual for companies to dominate their space," he said.