Apple (AAPL -0.52%) and Nvidia (NVDA 3.14%) are the two most valuable companies in the world. Their market caps are each well over $3 trillion, and it may only be a matter of time before there’s one worth $4 trillion. It could potentially happen within the next year.
The likelihood is high that the first stock to reach that pinnacle will be one of these two tech giants. But will it be Apple or Nvidia? Which looks to be the better buy from here on out?
The case for Apple
The advantage Apple has in reaching $4 trillion first is that as of last week, it had a higher market cap than Nvidia — nearly $3.7 trillion versus $3.4 trillion for the chipmaker. But that’s not the only reason Apple might get there first.
Right now, Nvidia has been experiencing mammoth growth due to artificial intelligence (AI) because many tech companies rely on its high-performance chips for AI-related development. But other companies are developing their own chips, which could provide competition for Nvidia down the road.
Apple, for instance, has been using chips from Amazon to help develop its AI models. Meanwhile, China has recently launched an antitrust probe into Nvidia, which could affect its long-run growth opportunities in that market. As well as Nvidia has been performing of late, there could be challenges that weigh on the business in the not-too-distant future.
Apple, on the other hand, may soon get a significant boost from AI as it adds it to more features on its phones. The company has announced Apple Intelligence, but many new features, including enhanced Siri capabilities (like editing a photo, extracting a PDF from an email), won’t be available until the new year.
As those features roll out, they could generate interest on social media and result in more phone upgrades and revenue growth for the business. If that happens, that may be enough to send the stock to a $4 trillion market cap.
The case for Nvidia
Nvidia’s stock has rallied more than 330% over the past three years, prompting many investors to worry about whether it may be approaching a peak. But when you consider the impressive results the company has generated, its valuation isn’t all that outlandish.
Based on analyst projections, Nvidia is trading at a forward price-to-earnings multiple (P/E) of 33, which is only slightly higher than Apple’s premium. But while the iPhone maker has been growing its sales by single-digit percentages, Nvidia’s top line soared by 94% in its most recent quarter, which ended on Oct. 27.
It’s much more tenable for investors to pay a premium for a fast-growing business than it is to pay one for a company such as Apple, which isn’t exactly experiencing a surge in sales and profits.
And with demand for AI chips still remaining high and Nvidia being a market leader in the space, it can continue to benefit from that trend. Investors have been cautious with the stock in recent weeks, but a strong quarter or upgraded guidance next year could be the catalyst that’s needed to remind investors of the phenomenal growth potential that the company still possesses.
Which stock will hit $4 trillion first?
Both stocks could very well end up reaching the $4 trillion mark next year. But I believe Apple may have the inside track right now because expectations may not be as high for the business. And by having a lower bar to hit in order to impress investors, it looks more probable that Apple may be able to rise at a faster rate than Nvidia.
If Nvidia failed to surge on its recent results, which demonstrated nearly 100% revenue growth, that may be a cause for concern that investor expectations have grown to the point where it may not be as easy for the stock to surge in value as it has in the past, especially as it laps stronger earnings numbers in the quarters ahead.
If you’re investing in the long haul, both of these tech stocks can be good investments to hang on to. But in the near term, Apple may possess a bit more upside.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, and Nvidia. The Motley Fool has a disclosure policy.
