Is the hype warranted? That's a question investors must always ask about anything that receives a huge amount of attention.
In some cases, the hype fizzles away -- 3D printing comes to mind. However, in other cases, early hype is more than justified. For example, the massive market built around the internet has shown that many early proponents were right.
I think artificial intelligence (AI) belongs in the latter category. In my view, the enormous success of multiple AI leaders is just the beginning. It's impossible to know what the future holds. However, I predict that by 2030, five AI stocks will be worth a combined $25 trillion -- perhaps even more.
AI's fantastic five
Based on market cap, the five biggest companies on the planet have one major thing in common: They're all investing heavily in AI. Not only that, their respective AI strategies have played a key role in their big gains over the last couple of years. Below are AI's "fantastic five":
| AI Stock | Current Market Cap* |
|---|---|
| Microsoft (MSFT 2.44%) | $3.08 trillion |
| Apple (AAPL 1.45%) | $2.93 trillion |
| Nvidia (NVDA 2.13%) | $2.73 trillion |
| Alphabet (GOOGL 2.30%) | $2.13 trillion |
| Amazon (AMZN 3.95%) | $1.86 trillion |
Data source: Google Finance. *Market caps as of May 30, 2024.
Microsoft surged past Apple earlier this year to take the No. 1 spot based on market cap. The company's partnership with ChatGPT creator OpenAI has unquestionably been the primary factor behind Microsoft's remarkable rise. The tech giant has integrated GPT-4 throughout its product lineup. Microsoft is especially benefiting from its relationship with OpenAI in its cloud business.
NASDAQ: MSFT
Key Data Points
Apple delivered a strong performance in the first half of 2023. Since then, though, it's lagged well behind the other biggest AI stocks. Some investors have worried that Apple was getting left behind in the generative AI race. The company's growth has also slowed significantly due in large part to saturation in the smartphone market. Still, Apple remains in a close contest with Microsoft for the biggest market cap.
NASDAQ: AAPL
Key Data Points
Nvidia is, without question, the brightest star in the AI universe right now. The demand for its graphics processing units (GPUs) continues to skyrocket. Every other company in the top five (plus many more) are Nvidia customers. Most of them would love to buy as many GPUs as they could get. Thanks to this tremendous demand, Nvidia's shares have skyrocketed.
NASDAQ: NVDA
Key Data Points
Alphabet seemed to have been caught by surprise by the successful launch of OpenAI's ChatGPT. It didn't take long, though, for the company to roll out its own generative AI products. Despite some public relations stumbles, Alphabet remains in the thick of the AI race with its Gemini AI models and Google Cloud AI offerings.
Like Alphabet, Amazon quickly introduced multiple generative AI products after ChatGPT took the world by storm. Amazon's AI initiatives have helped drive its stock much higher. The company's focus on profitability has also been a critical factor, with earnings more than tripling year over year in the first quarter of 2024.
The path to $25 trillion
The combined market cap of these five AI stocks stands at a little over $12.7 trillion right now. How can they together nearly double that amount to reach $25 trillion by the end of 2030? I think there are three major prerequisites.
1. Organizations migrate rapidly to the cloud to benefit from AI's tremendous return on investment
Importantly, AI must deliver tremendous returns on investment (ROIs) for companies. I expect this will be the case. If so, organizations across the world will almost certainly rapidly migrate their apps and data to the cloud to harness the power of AI.
Amazon CEO Andy Jassy estimates that at least 85% of global IT spending remains on-premises, with the remainder in the cloud. AI could go a long way toward flipping those numbers by the end of the decade.
This migration would directly benefit Amazon, Microsoft, and Alphabet's Google Cloud since they're the biggest cloud service providers. It should also help Nvidia as the leading source of chips for AI servers.
2. AI computing technology continues to improve at a frantic pace
It's critical for Nvidia that AI computing technology, especially chips, continues to improve at a frantic pace -- and that the company leads the way. Nvidia's new Blackwell GPU platform, which will launch later this year, should help make this a reality. CEO Jensen Huang said in the company's Q1 call that "other Blackwells are coming."
3. Edge AI becomes a huge new market
The first two prerequisites should ensure continued success for Microsoft, Alphabet, Nvidia, and Amazon. But what about Apple? The tech giant needs edge AI to become a huge new market. Edge AI enables AI to be run on mobile devices. Since Apple has over 2 billion active devices worldwide, it should be in the driver's seat to lead the edge AI market.
Potential problems and pleasant surprises
What could go wrong to derail these five AI stocks from reaching a combined market cap of $25 trillion by 2030? A lot. On the one hand, an economic recession could cause tech spending to tank. AI might not deliver the ROI companies hope to achieve. The "hallucinations" and other issues with generative AI could remain problematic.
On the other hand, there could be some pleasant surprises over the next few years. One possibility is a major breakthrough in artificial general intelligence (AI). Perhaps AI computing power could increase even faster than anyone expects.
Whatever happens, I think the hype about AI is warranted. And I won't be shocked if my prediction turns out to be too pessimistic.
