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Wall Street is already talking about two stocks that could reach a market capitalization of $4 trillion next year.
Artificial intelligence (AI) has been the driving force of any of those corporations in 2023, and it will most likely remain the story of the year in 2024. Recent advancements in OpenAI’s ChatGPT-popularized generation have ushered in a new era of AI. Investments.
With businesses and investors clamoring for more AI hardware and software, there are bound to be a lot of winners. Wedbush analyst Dan Ives sees trillions of dollars flowing into tech stocks with AI applications over the next couple of years. And he thinks there’s a reasonable chance at least $2 trillion of that goes into Apple (AAPL -0.54%) and Microsoft (MSFT 0.20%), pushing each of their market caps past $4 trillion.
Here’s why this can happen.
Apple has made great strides in synthetic intelligence over the past decade. It just doesn’t say it like many other corporations have over the past year.
True to Apple’s way, it talks about the customer taking advantage of the new AI-based features in its product line. It doesn’t look at the AI magic behind those features. During Apple’s fourth-quarter earnings conference call in early November, CEO Tim Cook highlighted the private voice and live voicemail features in the new iOS, as well as fall detection, crash detection, and abnormal ECG detection on Apple Watch. All of this works through AI.
Cook also says the company is investing heavily in generative AI. In fact, it has created its own giant language style and is internally testing its own ChatGPT-style chatbot, according to Bloomberg. The company is on track to spend about $1 billion. a year into its generative AI efforts.
Apple can take its time developing AI because its real merit is that it has the computing platform that other people use to the fullest. It has over 2 billion active devices and is the most popular smartphone platform in the United States. So when Apple launches a generative AI app like a Siri chatbot or iMessage, it has a built-in audience.
Ives sees Apple leveraging its position to support AI next year through an “AI app store.” Apple can highlight and support generative AI applications that run on-device, maintaining user privacy and security. If Apple takes its standard 30% cut, it could be a big business.
To reach a $4 trillion market cap, Apple’s stock will need to rise about 35% by 2024. Investors can rather expect a recovery in earnings growth, continued margin expansion, and potential tailwinds from Apple’s AI-powered products and services as well as the industry-wide trend. Apple may outperform the market in 2024, and it will most likely manage to make $4 trillion at some point, if not next year.
Microsoft managed to redefine itself multiple times, and it’s using AI to do it again.
Its core AI service is called Copilot, and it applies generation to all commercial programs. It’s helping sales groups in more than 15,000 organizations personalize visitor interactions. It’s helping doctors document patient care and write notes. He works on dozens of programs for enterprise software. He also anticipates that everyday knowledge workers will use Copilot in their Office suite to be more creative or find new insights into their data.
It should be noted that Microsoft’s current position as a leading provider of enterprise software makes it easy to upsell its Copilot applications (at $30 per seat) to its existing gigantic visitor base.
Microsoft has been more outspoken about its investments in AI than Apple. It increased its investment in OpenAI in early 2023 and now owns 49% of the company. It tightly integrates OpenAI’s generation with its own.
Microsoft generates tens of billions of dollars from its commercial operating systems and software business that it can reinvest in advancing artificial intelligence technology. This kind of capital gives you enormous merit over your smaller, struggling competition.
But Microsoft’s main merit is similar to Apple’s: it owns a platform. Its investment in OpenAI was a sensible move, as it positioned Microsoft’s cloud computing business, Azure, as the leading public cloud for AI developers. In fact, the control cited higher-than-expected AI intake as one of the main drivers of Azure’s outperformance in the last quarter. The company increased its turnover by 29%, especially faster than its competitors.
To reach a $4 trillion market capitalization, Microsoft’s stock will need to rise about 42%. Thanks to its robust cloud functionality and Copilot’s momentum, its earnings expansion is expected to increase while maintaining its exceptional margins. It has a valuation of more than 40 times fiscal 2025 earnings, but given its prospects of strong earnings expansion in the coming years from its investments in artificial intelligence, it may succeed in the pre-Apple milestone.
Adam Levy has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Apple and Microsoft. The Motley Fool has a disclosure policy.
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