Apple (NASDAQ: AAPL) recently regained its title as the world’s most valuable company, boasting a market cap of $3.57 billion. Despite a 60% rally in its stock over the past three years, Apple faced challenges as iPhone sales slowed amidst increased competition.
Analysts foresee Apple’s revenue growing at a 5% compound annual growth rate (CAGR) from fiscal 2023 to fiscal 2026, with its earnings per share (EPS) climbing at a 10% CAGR. This trajectory is expected to stem from a revival in iPhone sales, strategic forays into burgeoning markets like India, and the maturation of Apple’s subscription services boasting over a billion subscribers. Moreover, Apple is likely to prop up its EPS by substantial annual share repurchases.
Image source: Apple.
While these growth projections solidify Apple as a stable long-term investment, its stock, trading at 35 times forward earnings and 9 times this year’s sales, may not offer substantial upside. Speculative excitement surrounding Apple’s generative AI ambitions for first-party apps could have artificially inflated its valuations. If Apple maintains its current price-to-sales ratio by fiscal 2026, its market cap might scale by around 12% to $4.01 billion by the end of that year.
Despite remaining one of the top-ranked global companies, I foresee that three other trillion-dollar firms—Nvidia (NASDAQ: NVDA), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL)—could potentially surpass Apple’s valuation within the next three years.
Segmenting the Tech Titans
Apple, Nvidia, Microsoft, and Alphabet delineate varied business models. While Apple leans on iPhone sales for over half its revenue, it counts on services to steer growth. Nvidia thrives on sales of high-end data centers for AI computations. Microsoft finds over 50% of its revenue in cloud services, spanning Azure, Office 365, and Dynamics CRM. Alphabet predominantly hinges on Google’s ad-related income, with a rapidly expanding Google Cloud business overshadowing its core advertising segment.
These stalwarts are avidly expanding their generative AI platforms. Apple recently merged OpenAI’s ChatGPT into its applications and introduced novel generative AI functionalities. Microsoft, a major OpenAI investor, incorporates the start-up’s generative AI tools into its cloud services. Alphabet enhances its Gemini generative AI platform to match OpenAI and disseminates these tools across its ecosystem. Nvidia, capitalizing on the AI wave, sells prime AI infrastructure components, akin to “picks and shovels” during a gold rush.
Growth Trajectories Beyond Apple
Among these luminaries, Apple predominantly drives sales from a slower-growing consumer electronics sector. Nvidia excels in high-paced chip manufacturing, Microsoft leads in cloud computing and AI, while Alphabet thrives in digital advertising. Consequently, analysts anticipate faster growth for the latter three compared to Apple over the ensuing three years.
Company | Estimated Revenue CAGR (Next 3 Fiscal Years) | Estimated EPS CAGR (Next 3 Fiscal Years) | Current Market Capitalization | Price-to-Sales Ratio (Forward) |
|---|---|---|---|---|
Apple | 5% | 10% | $3.57 billion | 9 |
Nvidia | 46% | 53% | $3.26 billion | 28 |
Microsoft | 15% | 17% | $3.47 billion | 14 |
Alphabet | 11% | 20% | $2.37 billion | 7 |
Data source: MarketScreener.
If these projections materialize and price-to-sales ratios remain flat, Nvidia could achieve a valuation of $5.3 trillion by fiscal 2027, while Microsoft and Alphabet might witness market caps of $4.5 trillion and $3 trillion, respectively. Aligning Alphabet’s price-to-sales ratio with Microsoft’s could potentially catapult Alphabet’s market cap nearing $6 trillion. Hence, these tech luminaries stand a fair chance at outpacing Apple’s market cap over the next triennium.
Unveiling the Essence Beyond Market Valuations
Monitoring the market caps of the globe’s premier corporations offers surface-level insights, often masking their intrinsic capabilities and liabilities.
All four of these “Magnificent Seven” entities are poised for continued growth. Apple anchors itself in the mobile computing domain, Microsoft and Google are transitioning into cloud and AI stalwarts, and Nvidia remains a premier option for AI acceleration chips. Thus, rather than fixating on who may emerge as the most valuable tech giant in three years, investors ought to prioritize gauging their capacity to expand ecosystems, fortify barriers to entry, and spur innovation.