Apple (NASDAQ: AAPL) holds the crown as the world’s most valuable company once again, parading a market capitalization of $3.57 billion. Over the past three years, its stock price soared by more than 60%, despite facing a cooling trend in iPhone sales amidst tough macro and competitive headwinds.
Analysts forecast Apple’s revenue to increase at a compound annual growth rate (CAGR) of 5% from fiscal 2023 to fiscal 2026, with earnings per share (EPS) expected to rise at a 10% CAGR. The growth trajectory is anticipated to stem from a cyclical recovery in iPhone sales, forays into high-growth markets like India, and Apple’s subscription ecosystem accommodating over a billion users. Apple is further projected to bolster its EPS by repurchasing billions of dollars in shares annually.
Image source: Apple.
Despite such promising growth rates, trading at 35 times forward earnings and 9 times this year’s sales, Apple’s valuations might have been inflated due to the recent excitement surrounding its generative AI initiatives for first-party apps. If Apple attains Wall Street’s projections and maintains the same price-to-sales ratio until fiscal 2026, its market cap could grow by about 12% to $4.01 billion by the conclusion of that year.
Comparing Business Models of Tech Giants
Apple, Nvidia, Microsoft, and Alphabet operate on varied business models. While Apple relies heavily on the iPhone for revenue, it pins its growth hopes on the services segment. Nvidia thrives on high-end data centers for AI processing, Microsoft on cloud services including Azure and Office 365, and Alphabet on Google’s advertising business that includes search, display ads, and YouTube. Despite its dominance in advertising, Alphabet’s Google Cloud division is experiencing rapid growth surpassing its core advertising business.
All four firms are ramping up their generative AI initiatives. Apple recently integrated OpenAI’s ChatGPT into its suite of apps, unveiling new generative AI tools for image creation and text generation. Microsoft, a top investor in OpenAI, embeds the start-up’s generative AI tools in its cloud services. Alphabet is enhancing its Gemini generative AI platform to match OpenAI’s capabilities, deploying these tools across its network. Nvidia, profiting from this trend, leads the AI market by supplying essential infrastructure facilitating AI advancements.
Accelerated Growth Trajectory of Tech Titans
Apple, reliant on a slower-growth and cyclical consumer electronics sector, is expected to lag behind Nvidia, Microsoft, and Alphabet in terms of growth. Nvidia excels as a high-growth chipmaker, Microsoft dominates the cloud and AI realm, while Alphabet shines as a digital advertising powerhouse. Analysts anticipate all three to outpace Apple’s growth over the next 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 forecasts materialize and price-to-sales ratios remain stable, Nvidia might surge to $5.3 trillion by fiscal 2027, Microsoft could ascend to $4.5 trillion by fiscal 2026, and Alphabet may reach a market cap of $3 trillion. With the same price-to-sales ratio as Microsoft, Alphabet’s market cap could almost hit $6 trillion. Hence, all three tech giants hold the potential to surpass Apple’s market cap in the coming three years.
Deeper Evaluation Beyond Market Caps
Tracking the market caps of large companies may be engaging, but it skims the surface, overlooking their inherent strengths and weaknesses. Apple, Microsoft, Alphabet, and Nvidia, all part of the “Magnificent Seven,” are poised for continued growth. Apple commands mobile computing, Microsoft and Google transition towards cloud and AI, while Nvidia thrives as a premier AI accelerator chip player. Investors are better served focusing on these entities’ ecosystem expansion, competitive advantages, and revenue generation, rather than speculating on which will reign supreme in three years.
The Unseen Prospects of Investing in Apple Stock
As investors deliberate on whether to take a leap into Apple’s world, a startling revelation emerges from the Motley Fool Stock Advisor‘s team of analysts. The team’s discernment unveils a roster of 10 elite stocks primed for investment, but surprisingly, Apple fails to secure a spot among them. Within this elite grouping lie securities capable of delivering monumental returns in the forthcoming years. The excluded tech giant, Apple, appears to stand at a crossroad where its future potential warrants a closer inspection by interested parties.
Reflect on a previous instance where Nvidia earned the illustrious accolade on April 15, 2005. If an individual had ventured $1,000 into Nvidia at the time of endorsement, the speculative nest egg would have prospered to a staggering $791,929 down the temporal highway!*.
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