Apple is the front-runner in a tight, three-way contest to surpass the $4 trillion hurdle for the first time. But with a current stock market valuation of $3.6 trillion the iPhone maker is closely followed by microchip pioneer Nvidia, whose shares have had an amazing run, powered by the boom in artificial intelligence (AI) spending.
It is now worth $3.3 trillion. Software giant Microsoft is hard on its heels at $3.1 trillion. To put these huge numbers into context, Apple is now as big as the entire annual output of the British economy, with Nvidia and Microsoft close behind – see table below.
They have emerged from the pack of the so-called ‘magnificent seven’ stocks that increasingly dominate US and global equity markets.
Between them the seven – including Google’s parent company Alphabet, online retailer Amazon, Facebook-owner Meta and electric car giant Tesla – account for a third of the benchmark S&P 500 index of top US companies.
But the big three have pulled away from the rest of the field – so much so that Alphabet, their nearest rival – is lagging on a valuation of ‘just’ $2.4 trillion.
All this matters because even if you don’t own these stocks directly, UK savers increasingly are exposed to their fortunes – especially if they are invested in tracker funds, which track indices such as the S&P 500, or technology-focused investment trusts.
Phoney war: Jensen Huang of Nvidia, Tim Cook of Apple and Satya Nadella of Microsoft have all seen their companies’ valuations hit giddying heights
So which of the trio will land the $4 trillion prize? Or could investors, who have enjoyed the ride, be heading for a fall?
Experts say it’s not ‘if’ but ‘when’ the landmark is reached, though there may be some heart-in-mouth moments along the way.
‘The question of the first $4 trillion company may just be a matter of time, but there are some emerging signs of fatigue among investors who have been caught up in the euphoria surrounding all things AI-related,’ says Richard Hunter, head of markets at investment platform Interactive Investor.
‘On current sentiment and prospects, it seems Apple is favourite to hit the milestone first, with Nvidia second and Microsoft being something of a dark horse.’
Of the three, Apple has seen the slowest sales growth and has been the slowest to embrace the artificial intelligence revolution.
‘Apple’s journey with AI is a bit like the tortoise and the hare,’ notes Susannah Streeter, head of money and markets at investment firm Hargreaves Lansdown.
Other companies have thrown billions of dollars at AI without a clear path to making their huge investments profitable. Streeter, therefore, believes that Apple’s caution may pay off longer term.
‘Although Apple wasn’t first past the post in the AI race, its cautious approach could end up being a shrewd move,’ she adds.
For that to happen Apple must keep delivering features that capture the imagination of users in its upgrades, otherwise its future growth could stall, Streeter warns.
Apple’s recent share price surge has been driven by better-than-expected iPhone sales in the past quarter, as the first phase of its AI features are rolled out. This hasn’t been without some embarrassing glitches.
The AI feature on Apple’s latest smartphone has generated inaccurate alerts or entirely false claims when summarising breaking news notifications.
It led the BBC to complain to Apple after one of its summaries claimed Luke Littler had won the World Darts Championship – hours before the final had begun. (The Apple bot’s predictive power could not be faulted, however, as Littler went on to win the title.)
Lots of iPhone users have kept hold of their older handsets because innovations have been fewer and further between in recent years, says Streeter.
She says ‘the big hope’ is there is enough substance in the new AI features to drive customers into upgrading frequently over the next few years, predicting: ‘If this is the case, it could push the giant to this $4 trillion milestone.’
Dan Ives, analyst at wealth manager Wedbush, says: ‘Rome wasn’t built in a day, nor will Apple’s AI strategy be. But the seeds of that strategy are now forming and will transform the consumer-growth narrative over the coming years.’
Apple has a strong track record. It became the first publicly-traded firm to achieve a $1 trillion valuation in 2018, pipping Amazon. The $2 trillion milestone was hit two years later, and it became the first $3 trillion firm in 2023.
But Nvidia is coming up fast amid seemingly insatiable demand for its state-of-the-art AI chips.
It took 24 years for Nvidia to get to $1 trillion but just nine months to double in size and only 96 days to take it to $3 trillion last year.
Apple needed 718 days to go from $2 trillion to $3 trillion, and it took Microsoft 649 days. So Nvidia has valuable momentum.
‘Nvidia has a technological edge which makes it tough to beat,’ says Streeter. ‘It isn’t just dominating the market in terms of chips used in AI systems, it’s also developed platforms which enable users to optimise the hardware.’
But she wonders if Nvidia can continue at break-neck pace, warning: ‘It has further to climb than Apple. Given its stratospheric growth in 2024 and the recent wobble in share price, it may be beset with more volatility this year.’
Hunter at Interactive Investor agrees, saying: ‘There have been questions as to whether the tens of billions of dollars invested so far in AI will be repaid and, even if they turn out to be as profitable as some have predicted, over what time frame this might happen.’
Nvidia is the highest rated of the tech titans, promoting fears it may have furthest to fall if its performance fails to live up to investors’ hopes. Expectations are so high, there is little margin for error.
‘Investors are assuming Nvidia will demonstrate persistence,’ says Howard Marks, billionaire co-founder of Oaktree Capital.
He notes that of today’s ‘magnificent seven’, Nvidia may be ‘the sexiest’ but only Microsoft was in the top 20 of the S&P 500 at the height of the dotcom bubble a quarter of a century ago.
It is also one of only six companies to be able to make that boast, as other tech firms such as Intel, Qualcomm and Cisco fell away.
Marks says that in bubbles, investors are prepared to pay high prices for favoured shares and behave as if the firms are ‘sure to remain leaders for decades’.
‘Some do and some don’t,’ he says. In other words, not all the tech giants will stay the course.
You have been warned.
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