One of the clearest secular tailwinds of the past couple of years is the advent of artificial intelligence (AI). Recent advances in the field have helped power the ongoing market rally, as these next-generation algorithms promise to increase productivity by handling mundane tasks and streamlining productivity.
It should come as no surprise then that many of the world’s most valuable companies are at the forefront of AI development and have embraced the potential of generative AI. One of the biggest debates in tech circles is which of these technology stalwarts will be the first to cross the $4 trillion market cap threshold.
Investors asking that question may be missing the point, according to Wedbush analyst Dan Ives, who argues that 12 months from now, the $4 trillion club might, in fact, have three members. Let’s take a look at the candidates and what might drive them there.
Image source: Getty Images.
1. Apple
With the world’s largest current market cap, coming in at more than $3.4 trillion (as of this writing), Apple (NASDAQ: AAPL) is among the most likely contenders to be a founding member of the $4 trillion club. It would take a stock price increase of less than 17% to put Apple over the finish line, and there are plenty of drivers that could help propel the iPhone maker higher.
The most obvious potential catalyst is, of course, the recently unveiled iPhone 16. The latest version of the fan-favorite device comes with all the usual upgrades, including an improved camera, speedier processing, and increased battery life. One of the biggest draws, however, is the debut of Apple Intelligence, the company’s suite of generative AI-powered tools, which will likely attract technophiles in droves.
There’s more: The rampant inflation of the past couple of years had consumers hanging on to their iPhones a bit longer, and Ives estimates there are 300 million iPhones that haven’t been upgraded for four years or more, resulting in plenty of pent-up demand. He believes this will kick off the next supercycle and estimates Apple could sell as many as 240 million iPhones over the coming year.
Given improving macroeconomic conditions, I think the analyst is right: Throngs of consumers will pony up for the new AI-driven iPhone, helping push Apple over the $4 trillion mark.
2. Microsoft
Microsoft (NASDAQ: MSFT) is currently the world’s second-most valuable company. With a market cap of $3.2 trillion, the stock will only need to rise 24% to cross the $4 trillion threshold.
The company was quick to recognize the game-changing nature of generative AI and positioned itself for success. Microsoft took a stake in ChatGPT creator OpenAI and developed a suite of AI-driven productivity tools dubbed Copilot. It recently unveiled a line of Copilot-powered personal computers that will help increase Microsoft’s already expansive reach.
Just last month, the company announced that it would restructure the reporting of its business units to give a clearer picture of its success in AI. While investors don’t yet have the complete picture, the available evidence is compelling. During Microsoft’s fiscal 2024 fourth quarter (ended June 30), its Azure Cloud grew 29% year over year, and management noted that eight percentage points of that growth was the result of demand for its AI services. This helps illustrate that Microsoft’s AI strategy is paying off.
Ives seized on one point from management’s commentary, noting that Azure Cloud growth is expected to “accelerate in the second half.” He estimates that over the coming three years, 70% of Microsoft’s installed base will be using its AI solutions. He goes on to say this opportunity is not yet fully factored into the stock price.
I think the analyst hit the nail on the head. Given Microsoft’s extensive reach in both the consumer and enterprise markets, it won’t take much in terms of AI adoption to positively impact the company’s growth.
3. Nvidia
Nvidia (NASDAQ: NVDA) has become the de facto poster child for the AI revolution, sending its market cap to just over $3 trillion. As such, it would only take a stock price increase of 32% to take the chipmaker above $4 trillion.
The stock currently sits 10% off its peak, as investors contemplate the momentum of AI adoption, yet the evidence is incontrovertible. Nvidia’s largest customers — Microsoft, Meta Platforms, Amazon, and Alphabet — have been completely transparent about their plans to increase their capital expenditures for the remainder of the year and into 2025. They have also made it very clear that the vast majority of that spending will be dedicated to the data centers and servers needed to run AI.
Nvidia’s graphics processing units (GPUs) are the gold standard for running AI in data centers and controlled 98% of the data center GPU market last year. This illustrates why continued investment in the space stands to benefit Nvidia.
Ives cited surging chip demand, clarity on the upcoming release of its Blackwell chip, and robust outlook as proof that Nvidia stock has further to run.
I think the analyst’s assessment is spot on. Investors have been concerned that AI adoption could slow, which has weighed on Nvidia stock in recent months. However, while that will certainly happen one day, the available evidence suggests it won’t happen any time soon. In fact, some believe Nvidia will eventually be the world’s most valuable company.
A word on valuation
Excitement regarding the potential for AI since early last year has driven many stocks higher, resulting in a corresponding increase in their respective valuations. As such, each of these stocks is trading at a premium to the broader market. Microsoft and Apple are currently selling for roughly 33 times forward earnings, compared to a multiple of 30 for the S&P 500. Nvidia is the most egregious example, selling for 43 times forward earnings. That said, looks can be deceiving.
Analysts’ consensus estimates for Nvidia’s earnings per share for its 2026 fiscal year (which begins in January) is $4.02. On that basis, Nvidia is only trading for 30 times sales, so it isn’t as expensive as it might appear, particularly given the ongoing opportunity represented by AI. Using next fiscal year’s expectations yields similar results for Apple and Microsoft, which are selling for 30 times and 28 times next year’s expected earnings, respectively.
When viewed in that light, these tech titans are actually reasonably priced. That’s why each of these stocks is a must-own for the AI revolution.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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