Nvidia, Microsoft, or Apple: Which $3 Trillion Dollar Stock Is the Better Artificial Intelligence (AI) Play?

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Microsoft has taken the first step in the AI ​​revolution, but are Nvidia and Apple catching up?

Currently, there are only three companies in the world with a market capitalization of more than $3 trillion: Nvidia (NVDA -6.68%), Microsoft (MSFT -0.47%)And apple (AAPL 0.31%).

While Apple reaches $3 trillion in 2022, Microsoft and Nvidia are the newest members of the club — and each is fighting for the title of the world's most valuable business by the day.

Let's explore these three members of the “Magnificent Seven” and figure out which one might be best for artificial intelligence (AI) investors.

The case for Nvidia

Nvidia started 2024 with a market cap of about $1.2 trillion. Now, nearly half a year in, the company's market cap is a cool $3.2 trillion.

NVDA Revenue (TTM) data via YCharts

The chart shows the annual growth rate of Nvidia's revenue, gross profit, and net income based on the last 12 months. What's encouraging about Nvidia's business is that t0he company is growing both on the top and bottom lines.

Even more incredible, however, is that the company's profits are growing at a meaningfully faster rate than revenue. This means that not only is there demand for Nvidia's products, but the company is able to have strong pricing power, which is leading to an expanded 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 to grow over the next two years due to the AI ​​frenzy.

NVDA Revenue Estimates for Next Fiscal Year Data by YCharts

While Nvidia's price-to-earnings (P/E) multiple of 74 isn't exactly cheap, it's more reasonable than where it was last year (above 200).

2. The case for Microsoft

Microsoft has come a long way since developing the Windows operating system and revolutionizing modern-day computing. Over the past several years, much of Microsoft's growth has come from its Azure cloud computing platform. However, about 18 months ago, the company revealed that Microsoft would invest $10 billion in OpenAI – the developer of ChatGPT.

During 2023, Microsoft increasingly integrated ChatGPT functionality into its ecosystem — including LinkedIn, Azure, Microsoft Office, and more.

From my perspective, this first mover position gave Microsoft a competitive advantage over its peers eg Amazon, the alphabet, and Apple. While each of its megacap peers has invested in competing AI platforms, I think Microsoft has made unprecedented gains due to the breadth of its ecosystem and diverse assets.

One word of caution I have for investors considering Microsoft shares is the valuation.

MSFT pricing for free cash flow data via YCharts

According to this analysis, Microsoft's P/E ratio and price-to-free cash flow (P/FCF) are significantly higher than historical levels. Additionally, investors can see that both metrics have grown significantly since early 2023 — right around the time Microsoft invested $10 billion in OpenAI.

To me, this indicates that some of the upside offered by AI may already be baked into Microsoft shares.

Image source: Getty Images.

3. The case of Apple

As I've indicated, Apple was the first company to reach a $3 trillion valuation. But unlike Microsoft or Nvidia, I would 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 through both dividends and stock buybacks. Apple is able to finance these initiatives thanks to the company's growing cash pile. A combination of strong brand equity, customer loyalty, a strong balance sheet, and shareholder generosity have made Apple a no-brainer for long-term investment.

That said, I'll admit that I've been a little hard on the iPhone maker when it comes to the tech industry's newest obsession: AI. Earlier this month, Apple finally revealed its AI roadmap after playing the coy for far too long (in my opinion).

The next step in the company's growth depends on Apple Intelligence. The company is partnering with OpenAI to marry ChatGPT's software capabilities with Apple's hardware portfolio. These applications are expected to bring productivity and user experience to a whole new level on iPhone, iPad, Mac and Siri.

Considering that the company has an installed base of over 2 billion active devices, Apple Intelligence represents a tremendous opportunity as Apple looks to carve out a niche in the AI ​​landscape.

So which AI stock should you pick?

While Nvidia, Microsoft, and Apple all have $3 trillion valuations, it's hard to pick one as the outright winner.

I see Nvidia as the engine powering the AI ​​revolution. The company's chips, data center services, and software applications give Nvidia end-to-end access to the AI ​​ecosystem.

While Microsoft stock is a bit expensive, I think the premium is worth it. The company made the first chess move in the AI ​​revolution, and so far it's paying off as it integrates AI into its various platforms. It will be important for the company to develop and nurture its relationship with OpenAI now that Apple has entered the equation.

To me, Apple has the most to prove in this group. While the prospects for Apple Intelligence are exciting, it may take some time for the company to start realizing meaningful monetization from AI. Only time will tell whether Apple was fashionably late to the AI ​​party, or whether its peers are far ahead and represent more compelling investment opportunities.

Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Adam Spatiko has positions at Alphabet, Amazon, Apple, Microsoft and Nvidia. The Motley Fool has positions 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.

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