One of the most significant secular trends of recent years is the emergence of artificial intelligence (AI). Recent breakthroughs in this domain have fueled the current market upswing, as these advanced algorithms promise to enhance productivity by automating routine tasks and optimizing workflows.
It is no wonder that many of the world’s top companies are leading the charge in AI innovation and recognizing the potential of generative AI. A hot topic in tech discussions is which of these industry giants will first break through the $4 trillion market cap barrier.
Investors who are fixated on this question might be overlooking the bigger picture, as Wedbush analyst Dan Ives suggests that within a year, the $4 trillion club could realistically have three members. Let’s examine the contenders and the factors that could lead them there.
1. Apple
As the world’s most valuable company, boasting a market cap of over $3.4 trillion (at the time of writing), Apple (NASDAQ: AAPL) is highly regarded as a likely inaugural member of the $4 trillion club. A stock price increase of less than 17% could push Apple across this threshold, supported by numerous factors that drive its growth.
The most prominent catalyst is undoubtedly the newly introduced iPhone 16. The latest iteration of this beloved device features all the typical enhancements, such as a better camera, faster processing, and improved battery life. A key attraction is the launch of Apple Intelligence, a suite of generative AI tools that is likely to draw in tech enthusiasts.
Moreover, inflation over the past few years has led consumers to hold onto their iPhones longer, with Ives estimating around 300 million devices that haven’t been upgraded in four years or more, creating substantial pent-up demand. He forecasts that this will initiate the next supercycle, projecting that Apple could sell around 240 million iPhones in the coming year.
With improving macroeconomic conditions, I agree with the analyst: A surge of consumers is likely to invest in the latest AI-powered iPhone, enabling Apple to surpass the $4 trillion mark.
2. Microsoft
Microsoft (NASDAQ: MSFT) ranks as the second-most valuable company globally. Currently valued at $3.2 trillion, it requires just a 24% increase in its stock price to reach the $4 trillion milestone.
The company swiftly recognized the revolutionary nature of generative AI and positioned itself accordingly. Microsoft has invested in OpenAI, the creator of ChatGPT, and developed a series of AI-oriented productivity tools known as Copilot. It has recently launched a line of Copilot-enabled personal computers, broadening Microsoft’s considerable market presence.
Last month, Microsoft announced a reorganization of its business unit reporting to present a clearer picture of its AI successes. Although investors may not have the complete data yet, the existing evidence is promising. In its fiscal 2024 fourth quarter (ending June 30), Azure Cloud experienced a 29% year-over-year growth, with management attributing eight percentage points of this growth to the rising demand for AI services, highlighting the effectiveness of its AI strategy.
Ives emphasized a point from management’s commentary, mentioning that Azure Cloud growth is projected to “accelerate in the latter half” of the year. He predicts that over the next three years, 70% of Microsoft’s user base will be engaged with its AI solutions, noting that this opportunity is not yet fully reflected in the stock price.
I believe the analyst is correct. With Microsoft’s extensive presence in both consumer and enterprise markets, even modest AI adoption could significantly enhance the company’s growth.
3. Nvidia
Nvidia (NASDAQ: NVDA) has emerged as the leading symbol of the AI revolution, raising its market cap to slightly above $3 trillion. Thus, a mere 32% increase in its stock price would propel the chipmaker past the $4 trillion threshold.
The stock currently hovers 10% below its peak, as investors speculate on the pace of AI adoption; however, the evidence remains undeniable. Major clients like Microsoft, Meta Platforms, Amazon, and Alphabet have openly expressed intentions to boost their capital expenditures through the end of this year and into 2025. A clear majority of that spending will be allocated to the data centers and servers crucial for AI operations.
Nvidia’s graphics processing units (GPUs) are the benchmark for AI processing in data centers, commanding 98% of the data center GPU market last year. This explains why continued investments in this area will benefit Nvidia significantly.
Ives pointed to increasing chip demand, clarity regarding the upcoming Blackwell chip release, and a robust outlook as indicators that Nvidia stock has room for growth.
I believe the analyst’s evaluation is completely accurate. Investors have expressed concerns about potential slowdowns in AI adoption, which has impacted Nvidia stock recently. Nonetheless, while such a slowdown will inevitably occur at some point, the current indications suggest that it is distant. In fact, some analysts predict that Nvidia could ultimately become the world’s most valuable company.
A word on valuation
The excitement surrounding AI’s potential has led to a rise in numerous stock prices, hence elevating their valuations. Consequently, all these stocks trade at a premium compared to the broader market. Microsoft and Apple are currently valued at approximately 33 times their forward earnings, compared to a multiple of 30 for the S&P 500. Nvidia exemplifies a more extreme case, trading at 43 times forward earnings. However, appearances can be deceiving.
Analysts’ consensus estimates for Nvidia’s fiscal year 2026 earnings per share (starting in January) stand at $4.02. Based on this metric, Nvidia is trading at only 30 times sales, indicating that it may not be as overvalued as it seems, particularly considering the continuous opportunities associated with AI. Projections for Apple and Microsoft’s next fiscal year yield similar results, with respective valuations of 30 times and 28 times their anticipated earnings.
When assessed in this context, these tech giants appear to be reasonably priced. That’s why each of these stocks should be considered essential holdings for anyone looking to benefit from 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, serves on The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is also a member of The Motley Fool’s board of directors. Danny Vena has investments in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool also has a recommendation for: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool follows a disclosure policy.
Meet the 3 Supercharged Growth Stocks That Will Be Worth $4 Trillion by 2025, According to 1 Wall Street Analyst was originally published by The Motley Fool