Apple (NASDAQ: AAPL) is the most valuable company in the world right now, with a market capitalisation of $3.4 trillion. But a closer look at its recent financial performance indicates that it is struggling to accelerate its growth.
For example, in the third quarter of fiscal 2024 (ending June 29), Apple’s revenue rose just 5% year-over-year to $85.8 billion. Analysts expect this “Magnificent Seven” stock to end the year with a 9% increase in revenue to $390 billion. Moreover, its revenue is expected to rise just 8% in the next fiscal year.
Apple’s tepid growth can be attributed to the company’s already huge revenue base. Moreover, Apple’s end market, smartphones, is already quite large and its growth has stagnated. Market research firm IDC estimates that the global smartphone market could reach an annual growth rate of just 2.3% through 2028.
Considering that Apple relies on the iPhone for 52% of its revenue, it is not surprising that it is no longer expected to grow at a breakneck pace. This is precisely why Apple could lose its crown as the most valuable company in the world. Nvidia (NASDAQ: NVDA)a company that is in lucrative and fast-growing end markets that could help it achieve impressive growth over the next decade.
Let’s look at the reasons why Nvidia could be worth more than Apple after a decade.
Nvidia to benefit from massive growth opportunities across multiple end markets
Nvidia is currently the third most valuable company in the world, with a market capitalization of $2.85 trillion, which means it is not far from catching up with Apple. The incredible pace at which Nvidia has been growing tells us that it may in fact catch up with the iPhone maker in the next decade.
The company, known for its graphics processing units (GPUs), reported phenomenal revenue growth of 122% in the second quarter of fiscal 2025 to $30 billion. Nvidia has been riding the wave of artificial intelligence (AI), and its chips have been used to train popular AI models like ChatGPT. And now, Nvidia is branching out into areas beyond AI training to keep its growth attractive for a long time to come.
For example, in its August earnings call, Nvidia management noted that AI inference applications have accounted for over 40% of its data center revenue. This is an important trend to keep an eye on, as inference is the process of using a trained AI model to generate results from a new dataset. Nvidia has therefore moved beyond AI training and now derives a good portion of revenue from the AI inference space as well.
This is good news for the company’s long-term prospects, as its presence in both markets should allow it to remain a dominant force in the AI chip market. Investors should note that the AI chip market is expected to generate $300 billion in revenue by 2034, growing at an annual rate of 22% over the next decade.
According to various estimates, Nvidia controls between 70% and 95% of the AI chip market, leaving very little for rivals like Advanced Microdevices and IntelIt won’t be surprising to see that trend continue over the next decade as well, as a result of which Nvidia could maintain its high levels of growth for a long time to come.
Additionally, Nvidia is diversifying into lucrative markets such as enterprise AI software, where it has begun to see impressive growth. This could open up another lucrative growth opportunity for the company, as the AI software market is expected to generate a whopping $1 trillion in revenue by 2032, according to Precedence Research.
On the other hand, Nvidia has other strong growth drivers in the form of a nascent but potentially massive cloud gaming space, where it has already established a strong position. All of this explains why the company is projected to grow at a much faster pace than Apple.
Faster growth could help the chipmaker surpass Apple’s market cap
Analysts expect Apple’s earnings to rise at a compound annual growth rate (CAGR) of 11% over the next five years. There is a chance that the iPhone maker’s earnings growth could accelerate in the long term thanks to the growing contribution from the company’s high-margin services business, but it is likely to be hampered by the slow pace of smartphone sales growth over the next decade.
Precedence Research estimates that the global smartphone market could experience 7% annual growth through 2034. While this is a more optimistic figure than IDC has projected, Precedence believes that the adoption of technologies such as augmented reality and virtual reality will likely help the smartphone market achieve faster growth. But it is worth noting that these technologies have been around for some time and have not been enough to breathe life into the smartphone market.
On the other hand, the arrival of AI has proven to be a huge catalyst for Nvidia. Analysts project that the company’s earnings will grow at a compound annual rate of 52% over the next five years, a much faster pace than Apple is expected to report. Furthermore, Nvidia’s end markets are projected to grow at a much faster rate than Apple’s, and the good thing is that the company is the dominant player in most of those markets.
So there’s a good chance that Nvidia could outpace Apple’s growth by a wide margin over the next decade, and the market could reward the former with greater upside potential as a result and help it become a more valuable company.
Should You Invest $1,000 In Nvidia Right Now?
Before you buy Nvidia stock, consider the following:
He Motley Fool Stock Advisor The team of analysts has just identified what they believe to be the Top 10 Stocks for investors to buy now…and Nvidia wasn’t one of them. The 10 stocks that made the cut could yield outsized returns in the years ahead.
Consider when Nvidia I made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, You would have $710,860!*
Stock market advisor offers investors an easy-to-follow blueprint for success, including guidance on how to build a portfolio, regular analyst updates, and two new stock picks each month. Stock market advisor The service has more than quadruple the return of the S&P 500 since 2002*.
See all 10 actions »
*Stock Advisor performance as of September 23, 2024
Harsh Chauhan has no positions in any of the stocks mentioned. The Motley Fool has positions in Advanced Micro Devices, Apple, and Nvidia and recommends them. The Motley Fool recommends Intel and recommends the following options: Intel $24 call options expiring November 2024. The Motley Fool has a disclosure policy.
Prediction: 1 Stock That Will Be Worth More Than Apple in 10 Years was originally published by The Motley Fool