Prediction: 2 Artificial Intelligence (AI) Stocks That Could Be Worth More Than Apple in 5 Years | The Motley Fool

Apple is the most valuable company in the world today with a market capitalization of $3.4 trillion, but it is closely followed by two other tech giants, Microsoft (MSFT 1.64%) And Nvidia (NVDA 0.69%)It’s worth noting that both Microsoft and Nvidia have taken turns becoming the world’s most valuable company this year, but Apple has managed to reclaim the top spot, thanks to a recent surge in its stock price.

However, if we compare Apple’s outlook to Nvidia and Microsoft’s over the next five years, it wouldn’t be surprising to see them become more valuable than the iPhone maker. Here’s a look at why.

1. Microsoft

Microsoft’s market capitalization of $3.3 trillion means that the company is currently very close to that of Apple. More importantly, Microsoft is growing faster than Apple, a trend that is expected to continue over the next five years, thanks to the increasing adoption of artificial intelligence (AI) in many markets.

For example, Microsoft’s revenue for the third quarter of fiscal 2024 (which ended March 31) increased 17% year over year to $61.9 billion. At the same time, Apple’s revenue for the second quarter of fiscal 2024 (for the three months ended March 30) decreased 4% year over year to $90.8 billion. This stark difference in the two tech giants’ performance is largely due to AI.

While Microsoft is capitalizing on many AI-related growth trends, such as cloud computing, personal computers (PCs), and workplace collaboration tools, Apple has been slow to enter the AI-enabled smartphone market. Microsoft’s Intelligent Cloud segment posted a 21% increase in revenue in its fiscal third quarter to $26.7 billion, driven by growing use of its cloud-based AI services.

The company noted that its Azure cloud business saw a 7 percentage point increase from AI. The cloud-based AI services market is expected to generate $647 billion in revenue in 2030, with a compound annual growth rate of nearly 40% by the end of the decade, and Microsoft is sitting on a potentially significant additional revenue opportunity in this market.

Additionally, Microsoft Azure’s 25% share of the cloud computing market means the company is well positioned to capitalize on the multi-billion dollar AI opportunity. But that’s not where Microsoft’s AI enablers end. The company’s Copilot generative AI chatbot, which caters to both individual and business users, is seeing healthy adoption.

For example, Microsoft’s Copilot for GitHub, a developer platform used by more than 100 million users, had 1.8 million paid subscribers as of the end of March. Meanwhile, enterprise adoption of Copilot to improve workplace productivity remains strong. According to CEO Satya Nadella:

This quarter, we made Copilot available to organizations of all types and sizes, from large enterprises to small businesses. Nearly 60% of Fortune 500 companies now use Copilot, and we’ve seen accelerated adoption across all industries and geographies, with companies like Amgen, BP, CompetentKoch Industries, Moody’s, Novo NordiskNvidia and Tech Mahindra buy over 10,000 seats.

Microsoft charges business customers $30 per user per month for its Copilot. The individual plan costs $20 per user per month. So the company is already monetizing the AI ​​assistant market, which is expected to grow eightfold over the next decade and generate nearly $167 billion in revenue by 2033.

The AI-related catalysts above indicate why Microsoft’s annual earnings are expected to grow 16% per year over the next five years, compared to Apple’s projected growth rate of 10%. This could eventually help Microsoft’s stock generate more upside and become more valuable than Apple in the long run.

2. Nvidia

Nvidia is currently the third-largest company in the world, with a market cap of $3 trillion. Shares of the semiconductor company have surged 745% since the start of 2023, as Microsoft and other tech giants seek to get their hands on its AI graphics processing units (GPUs) to train and deploy AI models and services.

More importantly, Nvidia controls over 90% of the AI ​​chip market. This exceptional market share is behind its exceptional growth in recent quarters, which has allowed it to achieve financial performance far superior to that of Apple.

AAPL (TTM) Revenue data by YCharts.

The global market for artificial intelligence chips is expected to grow tenfold over the next decade to $300 billion, so there’s a good chance that Nvidia’s exceptional growth will continue. Some analysts predict that the company’s data center revenue alone could climb to $280 billion over the next four years, up from $47.5 billion last fiscal year.

Add to that additional factors, such as the recovery of the PC market thanks to the adoption of AI-powered PCs (which has started to boost Nvidia’s gaming business), and it’s easy to see why analysts are estimating that Nvidia’s profits will grow 46% per year over the next five years. That’s significantly faster than Apple is expected to grow over the same period.

Sure, Apple could get a boost from the emergence of AI smartphones, but investors should note that the company is operating in a highly competitive market. In the second quarter of 2024, Apple’s smartphone market share was 15.8%, down from 16.6% in the same quarter of 2023. Its shipments grew just 1.5% year over year, compared to 6.5% growth for the overall smartphone market.

It’s easy to see why Nvidia should grow faster, given that it leads the AI ​​chip market, while Apple operates in a crowded space where its rivals have moved quickly to jump on the AI ​​bandwagon. So the possibility of Nvidia overtaking Apple in market share over the next five years, thanks to its faster earnings growth, can’t be ruled out, and AI will play a central role in helping the semiconductor company get there.