There is quite a race going on in terms of market cap. Microsoft, Apple (AAPL 0.87%), and Nvidia are battling to find out which company is the largest in the world. Although the lead can change daily, Microsoft currently holds it by about $100 billion over Apple. While that's a massive figure, if Apple's market share increases by $100 billion in a single day, that actually equates to a 3.1% rise in its stock price, which is hard to grasp.
While the $3 trillion threshold was breached not long ago, the $4 trillion threshold isn't that far away. Which of these three will gain that crown first? My guess is Apple.
Apple Intelligence is the catalyst behind a potential rise
I'm no fan of Apple stock. At its current state, it's barely growing, expensive, and without an artificial intelligence (AI) strategy, making it an undesirable stock (in my eyes). But what Tim Cook and his team announced at the WWDC 2024 conference changed my opinion (for now).
Apple finally launched its Apple Intelligence product, its take on generative AI. Although it's about 12 months late to the game, I suppose better late than never. However, the reason Apple may have waited is why I am so impressed with in the announcement: Apple Intelligence will work only on iPhone 15 models and newer. This means only the current generation of phones can run it.
NASDAQ: AAPL
Key Data Points
Whether it's a hardware limitation or another way for Apple to kick-start growth in a struggling product line doesn't matter. Although there are no official numbers, it's estimated that around 90% of the current iPhone base doesn't have the newest model. So if Apple Intelligence becomes a must-have technology, it will ignite a new upgrade cycle.
And iPhones aren't the only affected products. iPads and Mac computers must have the M1 chip to deploy Apple Intelligence, so this catalyst could spread beyond smartphones.
This combines for a stock that could reach $4 trillion if the masses deem the product a must-have.
Apple's sales have been slightly declining recently
While estimates vary, a conservative guess on the number of iPhones deployed worldwide is around 1.3 billion to 1.5 billion. Should 10% of the user base speed up their upgrade cycle in addition to the current sales Apple is experiencing now, that would add an additional $117 billion in revenue to Apple's top line if the average cost of an iPhone 15 and iPhone 15 Max is used ($900).
Apple's iPhone sales totaled $199 billion over the past year. So if this boost is combined with regular sales, Apple's iPhone sales could explode by over 50%.
When you attach that growth to Apple's overall revenue, it would be about 31% higher.
AAPL Revenue (TTM) data by YCharts
Because Apple already has the infrastructure in place to build and market iPhones, increased sales would likely improve Apple's margins. But for argument's sake, let's say they stay the same.
So if Apple's stock price increased by 31% in tandem with the proposed revenue growth, its market cap would be $4.18 trillion. Because Apple Intelligence won't be released until the fall, it likely won't be until the holiday quarter that Apple sees a sizable revenue boost.
So the question becomes, could Microsoft or Nvidia rise that much between now and then? I don't see it happening for Microsoft. Although it's a dominant company, it's expensively valued and will continue to deliver solid results. It will eventually get to $4 trillion, but I don't see it happening until mid-2025.
Nvidia is the true wild card, as the strength the company and stock have shown is nothing short of incredible. We'll see what happens over the next few quarters with Nvidia, but investors may want to see results before bidding up the stock any further.
Apple is in a great position to take the crown of the first $4 trillion company with its latest announcement surrounding Apple Intelligence. If generative AI affects consumers as much as it has affected businesses, this feature will likely become a hit for Apple.
