Three AI-powered stocks are currently dominating the top of the market. Nvidia (NASDAQ: NVDA) has soared higher over the past 18 months, briefly surpassing both Microsoft (NASDAQ: MSFT) And Apple (NASDAQ: AAPL) as the most valuable company in the world.
As of Friday’s close, Microsoft had the highest market cap at $3.34 trillion, followed by Apple at $3.18 trillion and Nvidia at $3.11 trillion.
All three are within the $4 trillion range, but investors may be wondering which stock has the best chance of getting there first.
The case for Nvidia
Nvidia’s financial results have been fueled by the ongoing artificial intelligence (AL) arms race. Big tech companies are buying up as many Nvidia chips as they can get their hands on, which has prompted Nvidia to raise prices as supply struggles to keep up with demand.
Nvidia’s first-quarter revenue of $26 billion is up 262% from a year ago, and gross margin rose 13.8 percentage points to 78.4%. That resulted in a huge increase in earnings per share (EPS) of 629%.
There aren’t many signs of slowing down in the coming months either. Management’s guidance for $28 billion in revenue and 74.8% gross margin for the second quarter points to another strong earnings performance. Meanwhile, major tech companies, including Microsoft, MetaplatformsAnd Tesla all shared plans to increase their AI data center spending, including major purchases from Nvidia.
But the long-term prospects are less certain. Nvidia receives a large concentration of its revenue from just a handful of customers. One customer accounts for 13% of direct turnover and one indirect customer for 19% of total turnover. Meanwhile, those major customers, including Microsoft, Meta and others, are all designing and deploying their own AI chips for their data centers. Once they scale up production, these chips could ultimately provide a more cost-efficient solution for their data centers, reducing orders from Nvidia.
The near-term potential for Nvidia remains high, but the long-term is unclear at best.
The case for Microsoft
Microsoft has consistently proven to be one of the largest companies in the world since the 1990s. It has historically kept pace with the changing technology landscape, taking an early bet on generative AI leader OpenAI, which has helped cement its position in artificial intelligence.
Microsoft’s early bet on OpenAI and its integration with its Azure cloud computing platform made it the de facto choice among developers looking to use its large language models (LLMs). Azure OpenAI Service helped Microsoft’s cloud computing revenue grow 31% year-over-year in the most recent quarter, with 7 growth points coming directly from AI services.
Microsoft also uses OpenAI’s models to power the Copilot feature in its enterprise software offering. The service has seen strong adoption with more than 1.8 million paying subscribers, growing 35% quarter-on-quarter. It surpassed 400 million paid Office 365 seats earlier this year, so there’s still a huge runway to expand the service.
As a leading enterprise software company and one of the few hyperscale cloud platforms, Microsoft’s revenues appear secure. It is investing heavily in building out Azure data centers as demand for AI computing continues to grow, and it should see strong returns on capital as it also integrates AI features across its software suite. Its position as a leading player in two huge markets should make it a shoo-in to eventually reach a market cap of $4 trillion.
The case for Apple
Apple unveiled its AI efforts earlier this month at the annual Worldwide Developers Conference (WWDC). CEO Tim Cook promised to “break new ground” in AI this year. Whether Apple’s new AI features are groundbreaking innovations is up for debate, but everyone seems to agree that Apple has done something that only Apple can do.
Apple is seamlessly integrating its new generative AI features into the iPhone and its other devices. Siri will be much more capable than in the past and act more like a personal assistant to help you remember things and schedule appointments. Other generative AI features will make workflow on Apple devices faster and more efficient. 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 the same way.
Here’s the big kicker: Apple’s latest AI-powered features will only be available on the iPhone 15 Pro, iPhone 15 Pro Max, or the next generation of iPhones due out this fall. That could cause a huge upgrade cycle. It is estimated that over 93% of existing iPhone users do not currently have a compatible device.
However, I think it is unlikely that there will be hundreds of millions of additional upgrades this year. Apple’s AI will initially not be available outside the United States. But the company could see a small increase in sales and average selling price, and that increase could continue for several years as Apple improves its AI features and makes its new devices more attractive.
A bigger upgrade cycle than expected this fall could push Apple’s stock price to a market cap of $4 trillion. The combination of strong iPhone and services revenues with the massive stock buyback program should deliver strong earnings per share, supporting a higher stock price.
Which one will reach $4 trillion first?
If I had to bet on one company reaching a market cap of $4 trillion, it would be Microsoft. The company’s position in enterprise software is unparalleled, giving it a huge platform to sell new AI features. Furthermore, its partnership with OpenAI makes it a top choice for developers looking to access the major language models and create new AI applications. There’s still a long road to growth ahead for Microsoft, despite its already enormous size.
But Nvidia or Apple could reach $4 trillion faster if they deliver better-than-expected results in the near term. Despite the long-term challenges for Nvidia, the short term looks strong. But there is already a lot of upside in the share price, with a price-to-earnings (P/E) ratio of more than 50 times. Apple, meanwhile, is more stable and could benefit from further growth catalysts from strong iPhone sales and additional AI partnerships.
I think Apple has a good chance of being the first to reach $4 trillion, but that’s far from guaranteed. Both it and Microsoft look like great investments, even at this price. Nvidia is a lot riskier given its customer concentration and current valuation.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Adam Levy holds positions at Apple, Meta Platforms and Microsoft. The Motley Fool holds positions in and recommends Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Nvidia, Microsoft or Apple: Who will be the first to reach a market cap of $4 trillion? was originally published by The Motley Fool
