Nvidia (NVDA 6.18%) entered the $1 trillion market cap club this year thanks to a red-hot run in the stock market fueled by super high demand for its graphics processing units (GPUs) for training artificial intelligence (AI) models. Share prices of Nvidia have surged 226% in 2023. It now has a market cap of $1.2 trillion, which makes it the sixth-largest company in the world.
Apple (AAPL -0.35%) remains the world's most valuable company with a market cap of nearly $3.1 trillion, but there is a good chance that Nvidia could dethrone the iPhone maker by the end of the decade. Let's see why.
Apple hasn't been able to match Nvidia's growth
Over the past seven years, Nvidia's market cap has jumped an astonishing 2,300%, which is significantly higher than Apple's growth of just over 400% during the same period.
NVDA market cap data by YCharts.
It is easy to see why this has been the case. The market has rewarded Nvidia for the tremendous growth in its revenue and earnings over the years, driven by the growing applications of the company's GPUs in multiple industries ranging from computers to data centers to cars and even factories.
Apple's growth, on the other hand, has been slower than Nvidia's. Again, that's not surprising as Apple operates in markets that have reached their saturation points.
NVDA revenue (TTM) data by YCharts; TTM = trailing 12 months.
For instance, sales of smartphones were flat in the third quarter of 2023, according to market intelligence firm IDC. Meanwhile, personal computer (PC) shipments are set to drop almost 14% this year. The state of these markets explains why Apple's revenue in fiscal 2023 (which ended on Sept. 30, 2023) fell almost 3% year over year to $383 billion. Its adjusted earnings were almost flat year over year at $6.13 per share.
Apple got two-thirds of its revenue from selling smartphones and personal computing devices such as iPads and MacBooks in the previous fiscal year. Also, there is a lot of competition in these markets thanks to the presence of multiple participants.
For example, Apple is the second-largest smartphone manufacturer, but it has a market share of just under 18%. The company's share of the PC market stands at 10.6%, making it the fourth-largest player in this space.
Sales of both PCs and smartphones aren't expected to increase significantly in the long run. IDC expects the PC market to clock a compound annual growth rate (CAGR) of just 3.1% through 2027. Smartphone shipments are expected to have an even slower CAGR of 1.7% over the next four years. Not surprisingly, analysts aren't expecting much of an acceleration in Apple's growth, which is evident from the following chart.
AAPL revenue estimates for current fiscal year; data by YCharts.
And the company's earnings are expected to increase at an annual pace of just 6% over the next five years. That's way slower than the 21% annual earnings growth Apple clocked in the past five years.
Assuming it can sustain 6% earnings growth for the next seven years, its bottom line could increase to $9.20 per share in 2030 (using its fiscal 2023 earnings of $6.13 per share as the base).
If we multiply the projected 2030 earnings with Apple's five-year average forward earnings multiple of 24, the stock price could jump to $221 by the end of the decade. That would be an increase of just 15%, indicating that its market cap could hit $3.45 trillion in 2030.
Nvidia, on the other hand, is expected to clock annual earnings growth of a whopping 112% for the next five years. Let's see why that's the case, and check if that would be enough to help the company overtake Apple's market cap by 2030.
Nvidia is sitting on a massive growth opportunity
While Apple is struggling with saturated and crowded markets, Nvidia is the dominant force in the rapidly growing market for AI chips. It is estimated that the global AI chip market could hit $304 billion in annual revenue in 2030 as compared to $20 billion in 2021. Nvidia controls between 80% and 95% of this market, as per various third-party estimates.
This, however, is not the only massive growth opportunity Nvidia could benefit from over the next seven years. Including cloud gaming, automotive uses, and digital twins, there are multiple lucrative markets that the company could take advantage of. It estimates its total addressable market to be worth $1 trillion spread across multiple end markets.
The company is expected to finish its ongoing fiscal year with almost $59 billion in revenue, which would be a jump of 118% over the prior year. So, there is still a lot of room for growth for Nvidia, which explains why analysts consistently raise their estimates.
NVDA revenue estimates for current fiscal year; data by YCharts.
Assuming Nvidia manages to hit $107 billion in revenue in fiscal 2026, its three-year revenue CAGR would stand at an impressive 58% based on its fiscal 2023 revenue of $27 billion. If the company manages to sustain a relatively conservative long-term revenue growth rate of 25% from fiscal 2027 to fiscal 2031 (which will coincide with calendar 2030), its top line could hit $325 billion by the end of the decade.
Nvidia has an average five-year price-to-sales ratio of 20. Assuming it trades at a discount 15 times forward sales in 2030, its market cap could jump to almost $4.9 trillion in 2030. As such, there is a chance of Nvidia overtaking Apple's market cap in the long run, and this won't be surprising given how fast the former is anticipated to benefit from multiple growth drivers.
