Microsoft may have made the first move in the AI revolution, but are Nvidia and Apple catching up?
Right now, there are only three companies in the world with a market capitalization over $3 trillion: Nvidia (NVDA -6.68%), Microsoft (MSFT -0.47%), and Apple (AAPL 0.31%).
While Apple reached a $3 trillion valuation back in 2022, Microsoft and Nvidia are new members to the club — and each is battling by the day for the title of world’s most valuable business.
Let’s explore these three members of the “Magnificent Seven” and assess which may be best for artificial intelligence (AI) investors.
1. The case for Nvidia
Nvidia started 2024 with a market cap of about $1.2 trillion. Now, roughly halfway through the year, the company’s market cap sits at a cool $3.2 trillion.
NVDA Revenue (TTM) data by YCharts
The chart illustrates the annual growth rate of Nvidia’s revenue, gross profit, and net income on a trailing-12-month basis. What’s encouraging about Nvidia’s business is that t0he company is growing across both the top and bottom lines.
However, even more incredible is that the company’s profitability is accelerating meaningfully faster than revenue. This implies that not only are Nvidia’s products in demand, but the company is able to command robust pricing power, which is leading to an expanding profitability profile.
The best part about this dynamic is that analysts don’t expect the momentum to slow down anytime soon. As shown in the chart, consensus estimates for Nvidia’s revenue and earnings per share (EPS) are expected to continue growing over the next couple of years, fueled by AI mania.
NVDA Revenue Estimates for Next Fiscal Year data by YCharts
While Nvidia’s price-to-earnings (P/E) multiple of 74 isn’t exactly dirt cheap, it’s far more reasonable than where it was this time last year (above 200).
2. The case for Microsoft
Microsoft has come a long way from developing the Windows operating system and revolutionizing modern-day computing. Over the last several years, much of Microsoft’s growth has come from its Azure cloud computing platform. However, about 18 months ago, the company turned heads after it was revealed that Microsoft would be investing $10 billion into OpenAI — the developer of ChatGPT.
Throughout 2023, Microsoft swiftly integrated ChatGPT functionality across its ecosystem — including LinkedIn, Azure, Microsoft Office, and more.
From my purview, this first-mover position gave Microsoft a competitive advantage over its peers such as Amazon, Alphabet, and Apple. While each of its megacap peers has invested into competing generative AI platforms, I think Microsoft has unparalleled upside, due to the breadth of its ecosystem and various assets.
The one word of caution I have for investors considering Microsoft shares is valuation.
MSFT Price to Free Cash Flow data by YCharts
Per this analysis, Microsoft’s P/E ratio and price-to-free cash flow (P/FCF) are noticeably high compared to historical levels. Moreover, investors can see that both metrics have risen considerably since early 2023 — right around the time of Microsoft’s $10 billion investment in OpenAI.
To me, this signals that some of the upside presented from AI could already be baked into Microsoft shares.
Image source: Getty Images.
3. The case for Apple
As I’ve alluded to, Apple was the first company to reach a $3 trillion valuation. But unlike Microsoft or Nvidia, I’d argue that innovation and new market opportunities were not the primary reasons.
Apple has long been a pillar of Warren Buffett’s portfolio, and it’s easy to understand why. The company has a rich history of rewarding shareholders both in the form of dividends and stock buybacks. Apple is able to finance these initiatives thanks to the company’s ever-growing piles of cash. The combination of strong brand equity, customer loyalty, a robust balance sheet, and generous shareholder returns has made Apple a no-brainer long-term investment.
That said, I’ll admit that I’ve been a tad harsh on the iPhone maker when it comes to the tech industry’s new obsession: AI. Earlier this month, Apple finally revealed its AI roadmap after playing coy for far too long (in my opinion).
The next phase of the company’s growth rests on Apple Intelligence. The company is partnering with OpenAI to marry ChatGPT’s software capabilities with Apple’s portfolio of hardware. These applications are expected to bring an entirely new level of productivity and consumer experience to the iPhone, iPad, Mac, and Siri.
Considering the company has an installed base of over 2 billion active devices, Apple Intelligence represents a colossal opportunity as Apple looks to build a position in the AI landscape.
So which AI stock should you pick?
Although Nvidia, Microsoft, and Apple all have $3 trillion valuations, it’s tough to pick one as an outright winner.
I see Nvidia as the engine powering the AI revolution. The company’s chips, data center services, and software applications provide Nvidia with an end-to-end reach across the AI ecosystem.
While Microsoft stock is a bit pricey, I think the premium is worth it. The company made the first chess move in the AI revolution, and so far it appears to be paying off as it integrates AI across its various platforms. It’ll be important for the company to foster and nurture its relationship with OpenAI now that Apple has entered the equation, though.
To me, Apple has the most to prove among this cohort. While the prospects of Apple Intelligence are intriguing, it may take some time for the company to begin realizing meaningful monetization from AI. Only time will tell if Apple was just fashionably late to the AI party, or if its peers are too far ahead and represent more compelling investment opportunities.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, 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.