2 AI stock will be worth more than Apple stock by year-end 2025

On December 26, 2024By Littum

Apple is currently the most valuable publicly traded company in the world with a market capitalization of $3.9 trillion. The company has held that title for more than a decade, but has yet to demonstrate that it can monetize artificial intelligence (AI). Therefore, I believe the two AI stocks below could top Apple’s current market cap by the end of 2025:

Nvidia (NASDAQ: NVDA) is currently worth $3.4 trillion. Its share price will need to rise 17% in the next year for the company to achieve a market capitalization of $4 trillion.
Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) is currently worth $2.4 trillion. Its stock price needs to rise 67% in the next year for the company to achieve a market capitalization of $4 trillion.

Granted, my first prediction is somewhat conservative, and my second prediction is very aggressive. Here’s what investors should know about these AI stocks.

Nvidia has been the basis for artificial intelligence (AI) boom. Its graphics processing units (GPUs) are the industry standard for accelerating complex data center workloads, and the company dominates the market for InfiniBand networking, which is currently the connectivity technology of choice for backend networks in AI data centers.

The company reported excellent financial results in the third quarter of fiscal 2025, which ended in October 2024. Revenue rose 94% to $35 billion on particularly strong momentum in the data center segment, supported by strong sales growth in the automotive and robotics segment. Meanwhile, non-GAAP net income doubled to reach $0.81 per share. diluted share.

Nvidia has an important catalyst on the horizon in the launch of its Blackwell GPU. Compared to the previous Hopper chip, Blackwell can perform AI training tasks up to four times faster and AI inference tasks up to 30 times faster. The production increase began in the current quarter, so Nvidia should see significant Blackwell sales in the next year.

Morgan Stanley expects cloud AI semiconductor spending to increase by more than 50% next year. That paves the way for robust earnings growth from Nvidia. In fact, Wall Street expects its adjusted earnings to grow 50% over the next four quarters. That consensus makes the current valuation of 53 times adjusted earnings look cheap.

Nvidia’s stock needs to reach $164 per share for the company to have a market value of $4 trillion. It will hit that mark if it meets Wall Street’s earnings estimates and shares trade above 42 times earnings, which would be a big discount to the current valuation. Personally, I’d be surprised if Nvidia doesn’t blow past $4 trillion by 2025.

Alphabet has two key growth engines in digital advertising and cloud computing. It is the largest ad technology company in the world due to the popularity of Google Search and YouTube. And Google runs the third-largest public cloud behind Amazon and Microsoft. In both segments, the company relies on artificial intelligence to create new opportunities for revenue generation.

These efforts led to encouraging financial results in the third quarter. Revenue rose 15% to $88 billion, a sequential acceleration from 14% growth in the prior quarter. Operating margin expanded 4 percentage points as the company continued to restructure its cost base, and GAAP net income rose 37% to $2.12 per share. diluted share.

Wall Street expects earnings to rise 15% over the next four quarters. That estimate, divided by the current valuation of 25 times earnings, yields a price-to-earnings-to-growth (PEG) ratio of 1.8. That’s a significant discount to Microsoft’s PEG ratio of 4, but I think the market will give Alphabet a higher multiple once it has more visibility into regulatory issues.

To elaborate, a federal judge ruled in August that Alphabet acted illegally to maintain its monopoly in Internet search, and the Justice Department wants Alphabet to sell its Chrome browser. That would almost certainly hurt its search market share, which likely explains the valuation gap between Alphabet and Microsoft. In other words, Alphabet could have a higher multiple if it weren’t for regulatory issues.

However, Federal Judge Amit Mehta will make a decision on the remedy in August 2025, so that the regulatory headwinds can be resolved before the end of the year. Many analysts believe the solution will be less severe than what the Justice Department has proposed because (1) historical precedent makes a breach unlikely, and (2) the Justice Department may seek a less extreme solution under President-elect Donald Trump.

In that scenario, I think the market could allow Alphabet a PEG ratio of 2.6. That implies a share price of $326, based on projected earnings of $8.96 per share in 2025, implying a market capitalization of $4 trillion.

A lot of things have to go right for Alphabet to reach that goal next year, but patient investors should feel comfortable buying a position today regardless.

Have you ever felt like you missed the boat on buying the most successful stocks? Then you want to hear this.

On rare occasions, our expert team of analysts issue a “Double Down” stock recommendation to companies that they believe are emerging. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

Nvidia: if you invested $1,000 when we doubled in 2009, you would have $363,593!*
Apple: if you invested $1,000 when we doubled in 2008, you would have $48,899!*
Netflix: if you invested $1,000 when we doubled in 2004, you would have $502,684!*

Right now we are issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns on December 23, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has one disclosure policy.

Prediction: 2 AI stocks will be worth more than Apple stock by year-end 2025 was originally published by The Motley Fool