Nvidia Sparks AI Revolution, But Apple May Be the Hidden Gem
Artificial intelligence (AI) surged in popularity last year, with Nvidia (NASDAQ: NVDA) emerging as a major winner. The company’s graphics processing units (GPUs) have become essential for generative AI, fueling impressive financial gains. Nvidia has reported five consecutive quarters of triple-digit growth in revenue and profits, contributing to a staggering 900% increase in its stock over almost two years. This remarkable performance has pushed Nvidia’s market capitalization to over $3.6 trillion, positioning it as the world’s most valuable company.
Despite its success, some investors express caution over Nvidia’s high valuation and increasing competition, prompting them to seek alternative opportunities in the AI boom. One often overlooked prospect is Apple (NASDAQ: AAPL). Taking a more measured approach to AI, Apple has recently launched its first flagship device utilizing advanced AI technology, with many anticipating even greater innovations ahead.
Apple’s past performance speaks volumes. Over the last decade, Apple stock has soared by 717%, significantly outperforming the S&P 500, which gained 193% (as of this writing). With its unique take on AI, pundits speculate that Apple could reach a market cap of $4 trillion in the near future.
Image source: Getty Images.
Recent Challenges for Apple
Even though Apple leads the smartphone market, it has faced challenges in recent years. Economic factors have led many customers to hold onto their devices longer, resulting in slower sales growth. This has raised questions among investors about whether Apple’s best days are behind it. However, a broader perspective reveals noteworthy context.
While the market slowed down, Apple still gained ground. According to Counterpoint Research, the company had seven of the top ten smartphones in 2023. As the economy improves and inflation decreases, customers may be more inclined to purchase the latest devices.
Wedbush analyst Dan Ives estimates that there are about 300 million active iPhones that are at least four years old. With increased disposable income, many Apple users may finally choose to upgrade. Ives believes that the iPhone 16, recently launched, could lead to sales of up to 240 million units within the next year, which he describes as an “AI-driven super cycle.”
Enhancing User Experience
For many Apple enthusiasts, obtaining the latest iPhone is exciting enough, but others seek additional benefits to make the purchase worthwhile. The iPhone 16 might be just the stylish boost customers desire. Featuring enhanced camera capabilities, an efficient processor, and improved battery life, it also introduces Apple Intelligence, Apple’s distinct take on AI technology.
This new functionality allows the iPhone 16 to generate text and images and perform various actions across applications—while maintaining Apple’s focus on security. Tasks facilitated by this technology include:
- Writing, rewriting, and proofreading text in Mail, Notes, Pages, and third-party apps.
- Recording, transcribing, and summarizing audio, providing key points from conversations.
- Organizing and summarizing notifications within Mail.
- Improving language comprehension, which enhances Siri’s capabilities.
- Offering extensive knowledge about Apple products.
- Creating new emojis from simple descriptions.
- Integrating with OpenAI’s ChatGPT.
Apple has promised that this is just the beginning, with plans for further Apple Intelligence features in the future.
Potential for a $4 Trillion Valuation
It is crucial for Apple to meet the expectations set by its latest iPhone, as it accounted for 51% of Apple’s total sales for the fiscal year ending September 28.
Projected revenues for Apple are $414 billion in fiscal 2025, resulting in a forward price-to-sales (P/S) ratio of about 8.2. To reach a $4 trillion market cap, Apple would need to increase its revenue to around $488 billion annually. Analysts believe this target could be met by early 2027.
Ives sees current growth estimates from Wall Street as conservative. He shares the view that Apple’s AI integration into the iPhone will drive the company’s next growth phase. With a sales projection of 240 million iPhones and corresponding increases in app and service sales, Ives estimates an additional $30 to $40 could be added to Apple’s share price, easily pushing its market cap beyond $4 trillion in the next year or so.
A notable consideration is that with around 1.4 billion iPhones worldwide, only 17% of users need to upgrade to reach the 240 million sales goal, suggesting that this target may actually be within reach. Some investors dismiss Apple stock too readily; doing so could prove to be a costly oversight.
Currently, the stock trades at 30 times forward earnings, which is reasonable for a company with such a solid growth history. If an iPhone super cycle does unfold, the $4 trillion market cap could be achieved sooner rather than later.
Your Chance for Profit in a Thriving Market
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*Stock Advisor returns as of November 11, 2024
Danny Vena has positions in Apple and Nvidia. The Motley Fool has positions in and recommends Apple and Nvidia. 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.
