With a market capitalization of just a tad under $3 billion, Apple (AAPL +2.08%) is one of the largest companies in the world. However, its revenue growth over the past few years has been modest, while much of its stock gains have come from multiple expansions, as its price-to-earnings (P/E) ratio has been increasing.
NASDAQ: AAPL
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The company also appears to have fallen behind in the artificial intelligence (AI) race, with Apple Intelligence features reportedly consistently running into delays. In addition, some high-gross-margin revenue from a revenue-sharing agreement that allows Google to be the exclusive search engine for Safari on Apple devices is at risk after Alphabet lost an antitrust trial where the agreement was at the center of the case. While the company likely wouldn't lose all of this revenue, there is a risk that some of it would go away if it gave users the option to choose their default search engine.
Against this background, the upside for Apple may be limited over the next several years, opening the door for other companies to become larger than Apple. Let's look at two companies that could exceed Apple's market cap in the next five years.
Image source: Getty Images.
Amazon
With a market cap of roughly $2.3 billion, Amazon (AMZN +0.55%) is well-positioned to overtake Apple in size over the next few years. The company is the market-share leader in two important segments: e-commerce and cloud computing. And while Apple has lagged on the AI front, Amazon has gone all in, incorporating AI throughout its businesses to help make them more efficient and drive growth.
Its e-commerce business has settled into being a high single-digit, low double-digit percentage revenue grower. The segment is seeing strong margin expansion and operating leverage, which are powering profitability growth. Its high-gross margin, sponsored-ad business is playing a big part, with revenue climbing 19% year over year last quarter to $13.9 billion.
NASDAQ: AMZN
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Amazon is also seeing a lot of operational efficiencies. The company now incorporates AI throughout its warehouse and logistics operations to improve efficiencies and lower costs. It is developing AI-powered robots that can perform multiple tasks and even detect damaged items, helping the company save money on labor and costly returns. Meanwhile, it's using AI in its logistics business to help drivers save time and fuel by planning better routes and helping them more easily locate hard-to-find addresses in places like large apartment complexes.
The crown jewel of Amazon's businesses, though, is Amazon Web Services (AWS). Its cloud-computing segment is both its largest by profitability as well as its fastest-growing, with revenue jumping 17% year over year last quarter to $29.3 billion and operating income soaring 22% to $11.5 billion. Growth is being driven by AI as customers flock to its services to create their own AI models and apps and then run them on AWS' infrastructure. With demand for AI services surging, Amazon is investing heavily to build out infrastructure to meet this growing demand, with plans to spend a whopping $100 billion in capital expenditures (capex) this year, mostly on AI infrastructure.
Given the opportunities in front of it and its AI leadership, I predict Amazon will become larger than Apple in the next five years.
Meta Platforms
With a market cap of around $1.75 trillion, Meta Platform (META 1.18%) is likely going to have to see some solid gains to surpass Apple in size. However, the company has the wherewithal to do just that.
Meta operates one of the largest digital advertising platforms in the world, serving ads through its Facebook and Instagram social media sites. Like Amazon, Meta Platforms is investing heavily in AI to help drive growth. Through its Llama large language model (LLM), the company is helping increase revenue in two main ways:
NASDAQ: META
Key Data Points
First, Llama is helping improve engagement by giving users more of what they want. It's letting them generate their own AI content, delivering more relevant content, and adding interactive features that make the user experience more dynamic and personalized. Users spending more time on its social media platforms, meanwhile, is increasing ad inventory.
Second, its AI-powered ad tools are helping advertisers improve the creativity of their ads and giving them the ability to better target potential customers. This combination is making the ads on its platform more effective, which in turn is driving up ad prices. These dynamics could be seen at play last quarter when its ad impressions rose 5%, while the average price per ad climbed 10%.
Another potential growth driver for Meta is its newest social media platform called Threads. The company has a proven playbook when it comes to building new, successful social media platforms. First, it builds out new features and scales the platform, then later down the line, it looks to layer in ads. Threads has already passed 350 million monthly users. If user engagement continues to grow, Threads could become a meaningful revenue contributor over time.
Between its progress with AI and the potential of a third big social media platform in Threads, Meta has the ingredients to become larger than Apple in the next five years.
