Apple's Dominance in the Tech Industry and the Rise of Competitors

Apple’s $3.4 trillion market capitalization makes it the most valuable company in the world right now. Apple stock’s meteoric rise following a recent event laying out the iPhone maker’s generative artificial intelligence strategy. The tech firm recently announced a suite of AI features coming to iPhones later this year, including integrating OpenAI’s ChatGPT chatbot directly into Siri. Notably, Microsoft partially owns OpenAI’s for-profit arm, linking the fates of the two West Coast rivals, Apple and Microsoft, together yet again.

Other tech giants, Microsoft (NASDAQ: MSFT) and Nvidia (NASDAQ: NVDA), closely follow Apple. Microsoft and Nvidia have alternated as the world’s most valuable companies this year, but Apple has reclaimed the top spot due to a recent surge in its stock price.

However, if we compare Apple’s prospects to those of Nvidia and Microsoft for the next five years, seeing them becoming more valuable than the iPhone maker won’t be surprising. Let’s explore the reasons why.

Microsoft

With a market cap of $3.3 trillion, Microsoft is neck and neck with Apple. More significantly, Microsoft’s growth rate is outpacing Apple’s, a trend likely to continue over the next five years due to the increasing adoption of artificial intelligence (AI) across various markets.

For example, Microsoft reported a 17% year-over-year increase in revenue for the third quarter of fiscal 2024, reaching $61.9 billion. In contrast, Apple’s fiscal 2024 second-quarter revenue dropped 4% year-over-year to $90.8 billion. AI primarily drives this difference in performance.

Microsoft is leveraging AI in multiple areas, such as cloud computing, personal computers (PCs), and workplace collaboration tools, while Apple has been slower in entering the AI smartphone market. Microsoft’s Intelligent Cloud segment saw a 21% year-over-year revenue increase in fiscal Q3, reaching $26.7 billion, driven by increased demand for its cloud-based AI services.

The company reported that AI boosted its Azure cloud business by 7 percentage points. Analysts project that the cloud-based AI services market will generate $647 billion in revenue by 2030, growing at a compound annual rate of nearly 40% over the decade. Microsoft stands poised to capitalize on this substantial revenue opportunity.

Microsoft’s AI Innovations

With Microsoft Azure holding a 25% share of the cloud computing market, the company is well-equipped to seize this multibillion-dollar AI opportunity. But the AI-driven potential doesn’t end there. Microsoft’s Copilot generative AI chatbot, designed for individual and business users, is gaining traction.

For instance, Microsoft’s Copilot for GitHub, a developer platform used by over 100 million users, had 1.8 million paid subscribers by the end of March. The enterprise adoption of Copilot for workplace productivity remains strong. CEO Satya Nadella stated:

“This quarter, we made Copilot available to organizations of all types and sizes, from enterprises to small businesses. Nearly 60% of the Fortune 500 now use Copilot, and we have seen accelerated adoption across industries and geographies, with companies like Amgen, BP, Cognizant, Koch Industries, Moody’s, Novo Nordisk, Nvidia, and Tech Mahindra purchasing over 10,000 seats.”

Microsoft charges enterprise customers $30 per user per month for Copilot and $20 per user per month for the individual plan. The AI-assistant market is expected to grow eightfold over the next decade, potentially generating nearly $167 billion in revenue by 2033. Microsoft is already capitalizing on this growth.

These AI-related opportunities explain why analysts project Microsoft’s annual earnings will grow at 16% per year over the next five years, while Apple’s expected growth rate is 10%. This growth advantage could enable Microsoft to surpass Apple in market value in the long run.

Nvidia

Nvidia ranks as the third-largest company globally, with a market cap of $3 trillion. Shares of the semiconductor powerhouse have soared by an astounding 745% since the start of 2023, as companies like Microsoft and other tech leaders have been eager to acquire Nvidia’s AI graphics processing units (GPUs) to train and deploy AI models and services.

Crucially, Nvidia controls over 90% of the AI chip market, contributing to its impressive recent growth and superior financial performance compared to Apple.

Nvidia Market Outlook

With the global AI chip market predicted to expand tenfold over the next decade to reach $300 billion, Nvidia is poised for continued outstanding growth. Some analysts forecast that the company’s data center revenue alone could climb to $280 billion in the next four years, up from $47.5 billion in the previous fiscal year.

In addition to AI chip sales, the recovery in the PC market driven by the adoption of AI-enabled PCs is boosting Nvidia’s gaming business. This robust growth trajectory explains why analysts expect Nvidia’s earnings to increase by 46% annually over the next five years, significantly outpacing Apple’s projected growth.

Although Apple could benefit from the rise of AI smartphones, it operates in a highly competitive market. In the second quarter of 2024, Apple’s smartphone market share was 15.8%, down from 16.6% in the same quarter of 2023. Its shipments increased by only 1.5% yearly, compared to the overall smartphone market’s growth of 6.5%.

Nvidia’s growth is expected to be faster due to its dominance in the AI chip market, while Apple competes in a crowded arena where competitors have quickly embraced AI. As a result, Nvidia’s potential to overtake Apple’s market share over the next five years is a possibility, with AI playing a pivotal role in the semiconductor company’s success.