One of the most important technological developments in decades is that of artificial intelligence (AI). These next-generation algorithms promise a tidal wave of productivity increases by streamlining and automating time-consuming tasks, resulting in a veritable windfall for those who adopt this groundbreaking technology.
The number of applications that can benefit from the addition of generative AI is virtually unlimited, which has many of the world's biggest companies lining up to stake their claim. The result has been a marked increase in the value of these tech stalwarts, as their market caps have soared into the trillions of dollars. Wall Street is taking wagers on which one will be a charter member of the $4 trillion club.
That view may be myopic, according to Wedbush analyst Dan Ives. The tech veteran argues that over the next six to nine months, three household names will have earned their membership, profiting shareholders along the way.
Let's look at the leading candidates and what will fuel their ascent.
Image source: Getty Images.
Nvidia
No discussion about AI would be complete without including Nvidia (NASDAQ: NVDA), whose graphics processing units (GPUs) make the technology possible. This has fueled a meteoric rise in its sales and profits and, ultimately, its stock price. As a result, Nvidia is the world's third-most valuable company (as of this writing), with a market cap of $3.4 trillion. It will only take stock price gains of about 19% for the chipmaker to secure its membership in the $4 trillion club.
Nvidia GPUs are the gold standard for generative AI, which makes them a must-have in the data centers where AI processing takes place. Nvidia reportedly controlled 98% of the data center GPU market in 2023, and its dominance likely continued into this year. Each of the major cloud infrastructure providers has telegraphed significant spending to advance their respective AI agendas. Furthermore, the upcoming debut of Nvidia's next-generation AI-centric Blackwell chip is fueling excitement that the trend will continue.
"Blackwell represents the next frontier for Nvidia and the overall AI revolution," Ives wrote. "We believe the Street is still way underestimating the demand curve over the next 12 to 18 months and beyond."
I think Ives is right on the money. As the unrivaled leader in the data center GPU market, Nvidia has the inside track and will continue to benefit from the accelerating adoption of AI. An added bonus is that the company's gross profit margin hovers near a record high, making Nvidia even more profitable. This will ultimately propel the stock higher, virtually guaranteeing admission to the $4 trillion club.
Microsoft
Microsoft (NASDAQ: MSFT) is currently the world's second-most valuable company, with a market cap of $3.38 trillion. As such, the stock needs gains of just 18% to hit the $4 trillion benchmark. The company realized the enormous potential and worked quickly to capitalize on the opportunity.
The company's initial efforts yielded Copilot, Microsoft's suite of AI-fueled productivity tools, but that's just the beginning. Microsoft recently released analytics tools to help customers measure their return on investment (ROI) related to AI spending, removing one of the biggest stumbling blocks related to AI adoption. The company is also working to bring down the cost of AI computing for users, another key hurdle. Finally, Microsoft is developing AI agents that focus on mission-critical business applications.
Microsoft's AI revenue is on track to exceed a $10 billion run rate this quarter. Ives estimates that 70% of Microsoft's installed base will adopt its AI solutions over the coming three years, which would significantly increase sales and profitability. He also calculates that for every $100 of current Azure Cloud spending, Microsoft could generate an incremental $40 annually. To give that context, the company's intelligent cloud segment, which includes Azure, is expected to generate $100 billion over the coming year, which helps illustrate the magnitude of the opportunity.
Ives has clearly done his homework. Microsoft's pace of AI innovation is unparalleled. Given its reach in the enterprise and consumer markets, the company has a ripe field to plow, which should continue to drive growth, ensuring its admission to the $4 trillion club.
Apple
Apple (NASDAQ: AAPL) has a long track record as the world's most valuable company, and while it has ceded the top spot on numerous occasions, its absence has been fleeting. The iPhone maker currently has a market cap of $3.73 trillion (as of this writing), roughly 7% below the $4 trillion threshold. Apple has a number of clear catalysts that could push it over the finish line.
The biggest potential driver, bar none, is the iPhone 16, which just hit stores in mid-September. While most new iPhone releases have the potential to move the needle, this latest version supports Apple Intelligence, which brings a host of generative AI features to the device. CEO Tim Cook suggested these advanced capabilities are already attracting user attention. "(iOS) 18.1 has twice the adoption rate of (iOS) 17.1," Cook said. "So that clearly shows a level of interest out there."
Recent economic headwinds are beginning to abate, and consumers who have been unwilling to upgrade to the latest iPhone in the face of rampant inflation are finally loosening their purse strings. Ives estimates there are roughly 300 million iPhones in the wild that haven't been upgraded in more than four years. The improving economy and AI functionality could spark a long-awaited "supercycle." Ives estimates that Apple could sell as many as 240 million iPhones over the coming year.
"We believe the first member of the $4 trillion market cap club will be Apple," Ives predicted, "as the iPhone 16 brings in the AI Revolution to Cupertino."
I think the analyst hit the nail on the head. The improving economy, coupled with the new AI-powered iPhone, will be just the sales catalyst the company needs, which will likely secure Apple's membership in the $4 trillion club.
Attractively priced
AI is already growing by leaps and bounds, but there's still more to come, according to experts. The generative AI market is expected to be worth between $2.6 trillion and $4.4 trillion over the coming decade, according to global management consulting firm McKinsey & Company. As leaders in the quest to bring AI to the masses, our trio of companies is well positioned to reap the rewards for shareholders.
Yet despite the significant potential for future gains, Nvidia, Apple, and Microsoft are still attractively priced at 32 times, 30 times, and 30 times next year's earnings, respectively. Their positions near the top of the leaderboard aside, the opportunity represented by the growing adoption of AI can't be ignored.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $822,755!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of December 9, 2024
Danny Vena has positions in Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
