Nvidia, Microsoft, Apple: Which will reach $4 Trillion market cap first?

Currently, three artificial intelligence stocks are dominating the market. NVIDIA (NVDA -3.22%) It has risen sharply in the past 18 months and is now Microsoft (MSFT 0.92%) and apple (AAPL -1.04%) As the world’s most valuable company.

After Friday’s close, Microsoft had the highest market capitalization at $3.34 trillion, followed by Apple at $3.18 trillion and Nvidia at $3.11 trillion.

All three of these stocks are on track to hit $4 trillion, but investors might be wondering which one is most likely to reach that milestone first.

For Nvidia

Nvidia’s performance has been driven by the ongoing artificial intelligence (AL) arms race, with big tech companies snapping up as much of the company’s chips as they can, forcing the company to raise prices as supply struggles to keep up with demand.

NVIDIA’s first-quarter revenue was $26 billion, up 262% year over year, and gross margins rose 13.8 percentage points to 78.4%, resulting in a massive 629% increase in earnings per share (EPS).

There are few signs of a slowdown in the coming months. Management is forecasting second-quarter revenue of $28 billion and gross margins of 74.8%, signaling yet another strong performance. Meanwhile, Microsoft, Meta Platformand Tesla Both shared plans to increase spending on AI data centers, including a major purchase from Nvidia.

But the long-term outlook is uncertain. Most of Nvidia’s revenue is concentrated in just a handful of customers: one customer accounts for 13% of direct revenue, and one indirect customer accounts for 19% of total revenue. Meanwhile, large customers like Microsoft and Meta are all designing and deploying their own AI chips for their own data centers. With increased manufacturing scale, these chips could eventually become a more cost-effective solution for their own data centers, leading to fewer orders for Nvidia.

Nvidia’s near-term potential remains strong, but the long-term is uncertain.

Microsoft

Microsoft has been one of the world’s largest companies since the 1990s. Since its inception, the company has responded to changes in the technology industry and solidified its position in artificial intelligence with an early investment in OpenAI, a leader in generative AI.

Microsoft bet early on OpenAI, and its integration with its Azure cloud computing platform has made it the de facto choice for developers looking to use large language models (LLMs). Azure OpenAI services helped drive 31% year-over-year growth in Microsoft’s cloud computing revenue in the most recent quarter, with 7 percentage points of that growth coming directly from AI services.

Microsoft is also using OpenAI’s models to power Copilot capabilities across its enterprise software products. The service has seen strong adoption, with over 1.8 million paid subscribers and 35% quarterly growth. Earlier this year, the number of paid Office 365 seats exceeded 400 million, leaving plenty of room for the service to grow even further.

As a leading enterprise software company and one of the few hyperscale cloud platforms, Microsoft’s revenues appear to be stable. As demand for AI computing continues to grow, it is investing heavily in building out Azure data centers and integrating AI capabilities across its software suite, which should provide a strong return on capital. With leading positions in two huge markets, it’s a sure bet that the company will eventually reach a market cap of $4 trillion.

Apple Case

Apple announced its AI efforts earlier this month at its annual Worldwide Developers Conference (WWDC), with CEO Tim Cook promising to “break new ground” with AI this year. While it’s debatable whether Apple’s new AI features are groundbreaking innovations, everyone seems to agree that Apple has done something that only Apple can do.

Apple will seamlessly integrate new generative AI capabilities into iPhone and other devices. Siri will be much smarter than before, acting like a personal assistant to help users with reminders and scheduling events. Other generative AI features will make workflows faster and more efficient on Apple devices. Apple has also developed a way to integrate OpenAI’s ChatGPT into the service without sharing user data, and is working to add new partners in a similar way.

The biggest problem is that Apple’s latest AI-powered features will only be available on the iPhone 15 Pro, iPhone 15 Pro Max, or the next-generation iPhone due out this fall, which could spur a massive upgrade cycle: estimates suggest that more than 93% of existing iPhone users don’t currently have a compatible device.

But we think it’s unlikely that hundreds of millions of additional upgrades will happen this year — Apple’s AI won’t be available outside the U.S. at first — but we could see a slight uptick in sales and average selling prices that could continue for a few years as Apple improves its AI capabilities and makes its new devices more attractive.

A larger-than-expected upgrade cycle this fall could send Apple’s stock to a $4 trillion market cap. Strong iPhone and services revenue, combined with a large share repurchase program, should drive strong EPS growth and help drive the stock price higher.

Which one will reach $4 trillion first?

If there’s one company that will reach a market cap of $4 trillion, it’s Microsoft. The company’s unique position in enterprise software gives it a huge platform to sell new AI capabilities. And its partnership with OpenAI makes it the first choice for developers who want to access the company’s massive language models to create new AI applications. Despite its already massive size, Microsoft has a long road ahead of it to grow.

However, Nvidia and Apple could reach $4 trillion sooner if they perform better than expected in the near term. Nvidia looks strong in the near term, despite long-term challenges. But the company’s stock trades at over 50 times forward earnings, meaning it already has a lot of upside potential. Apple, on the other hand, is more stable and could benefit from further growth catalysts in the form of strong iPhone sales and additional AI partnerships.

I think it’s likely that Apple will reach $4 trillion first, but it’s by no means guaranteed. Apple and Microsoft look like good investments even at this price. Nvidia is much riskier given its customer concentration and current valuation.