Apple (AAPL +2.39%) is the world's largest company, with a market capitalization of $2.83 trillion, which is not surprising considering the impressive upside the stock has delivered over the past decade.
Shares of Apple have crushed the broader market handsomely as the demand for its products and services has remained robust over the years. However, Advanced Micro Devices (AMD 0.10%) stock has outperformed Apple by a huge margin over the past 5 years, recording much faster growth in its market capitalization as compared to the iPhone maker.
AMD Market Cap data by YCharts
AMD's terrific rally has catapulted its market capitalization to $165 billion, which puts it at number 78 on the list of the most valuable companies in the world. But can the chipmaker eclipse Apple's market cap and become a bigger company by 2030? Let's find out.
Why AMD's market capitalization is growing at a faster pace than Apple's
It is easy to see why AMD's stock price and market capitalization have increased at a faster pace than Apple's.
AMD Revenue (TTM) data by YCharts
The chipmaker has clocked much faster growth in revenue and earnings over the years, and analysts expect the trend to continue in the future as well. For instance, AMD's earnings are expected to clock a compound annual growth rate of 35% for the next five years. Apple's earnings, on the other hand, are expected to increase at a much slower annual rate of 15.7% over the same period.
What's more, Apple's sales growth is also expected to pale in comparison to AMD's. The revenue of the world's largest company is expected to increase by just 4.4% in the current fiscal year, followed by an increase of 5.1% in fiscal 2023. Meanwhile, AMD is set to exit the current fiscal year with 65% top-line growth that's expected to be followed by a 19% increase in the next fiscal year.
As such, it won't be surprising to see AMD's market capitalization continue to increase at a faster pace than Apple's in the coming years, especially considering the multiple growth drivers the chipmaker is sitting on.
Image source: Getty Images.
Why AMD can continue to outperform Apple
Apple is making the most of the 5G smartphone opportunity and looks primed to dominate this market in the future. Additionally, the tech titan is reportedly branching out into emerging tech trends such as the metaverse and self-driving cars that could substantially boost its revenue in the long run.
AMD, however, is well-positioned to win not just in the metaverse and self-driving cars, but also in other hot areas such as video gaming, personal computers (PCs), data center servers, and others. For instance, AMD is benefiting big time from the new console cycle as gamers are lapping up the new devices from Sony (SONY +1.28%) and Microsoft (MSFT +0.56%) as fast as the companies can make them.
Not surprisingly, Sony expects to make 22.6 million PS5 consoles in the next fiscal year, as compared to the 14.8 million units it is planning to sell in the current one. Microsoft's latest Xbox consoles are also in great demand, with the company pointing out that the Xbox Series X and the Series S are selling at a faster pace than previous generations.
The good part is that the demand for the new generation of gaming consoles is here to stay, as the devices are barely more than a year old, with many people unable to get their hands on one due to a supply shortage. Mordor Intelligence estimates that sales of consoles could increase at an annual pace of 15% for the next five years, and as AMD supplies chips to the two biggest names in this space, it seems set to enjoy secular growth.
Meanwhile, the data center market is another key growth driver for AMD. The company has been consistently gaining share over there. Consulting firm Omdia estimates that AMD's share of the server market increased to 18% in the third quarter of 2021, an increase of two percentage points from the previous quarter. Given that server sales are expected to hit $86 billion this year and AMD is expected to corner a quarter of this market in 2022 as per analysts, the chipmaker looks well-placed to sustain its growth.
Apple, on the other hand, will have to contend with headwinds such as the arrival of affordable 5G smartphones that could dent its pricing power. Market research firm IDC expects the average selling price of 5G smartphones to drop to $416 in 2025 from $643 in 2021. This doesn't look like good news for Apple, as the iPhone reportedly commanded an average selling price of $950 last year. This explains why analysts are expecting Apple's growth to cool off in the coming years.
Can AMD's market cap overtake Apple's?
AMD's 2021 earnings are expected to be $2.63 per share. If the company can clock an earnings growth rate of 35% for the next nine years thanks to the many catalysts it is sitting on, it could hit $39 per share in earnings in 2030. AMD stock is trading at 42 times forward earnings right now, and a similar multiple in 2030 means that each share could be worth $1,638. That points toward a 1,100% increase in the stock price from current levels of around $136 a share.
So, AMD's market capitalization could hit nearly $2 trillion in 2030 considering the potential upside that it could deliver, which means that its valuation is unlikely to exceed Apple's as the latter is worth close to $3 trillion right now. Even if Apple clocks a slower pace of earnings growth in the future, it should still be worth more than AMD by the end of the decade.
However, investors shouldn't miss the fact that AMD will continue to remain a hot growth stock in the long run as it has in the past, which is why this chipmaker remains worth holding on to.
