Although the world has never seen a $5 trillion company, there is a competitive race between Apple (NASDAQ: AAPL) and Nvidia (NASDAQ: NVDA). Apple has a large lead with its $3.6 trillion market cap, but Nvidia isn't far behind with a $3 trillion market cap. While those figures may sound close, the gap between the two is equivalent to around the entire valuation of Netflix, Home Depot, or Johnson & Johnson.
Is Apple's leadership position too far ahead for Nvidia to close the gap? Or is Nvidia primed to beat Apple to this milestone?
Because of their sheer size, everyone is fairly familiar with Apple's and Nvidia's businesses. Apple is the premier consumer tech brand, with its product ecosystem headed up by the iPhone. Nvidia manufactures graphics processing units (GPUs), which are in huge demand thanks to the artificial intelligence (AI) arms race.
Both of these products have a large use case, but only one company is growing at an appreciable rate: Nvidia. Apple has been stuck in a growth rut for three years, with its earnings per share and revenue hardly rising since the start of 2022.
While this trend is starting to move up, it's hardly appreciable. Analysts expect a mere 4.6% revenue growth for fiscal year 2025, so Apple is clearly a sluggish grower. However, despite its revenue and earnings growing in the mid-4% range over the past three years, Apple's stock is up 36%.
How? Investors are willing to pay more than ever before for the stock.
Apple's stock now has an incredibly expensive valuation of 38 times trailing earnings and 33 times forward earnings despite having very little growth to show for it. This is in stark contrast to Nvidia, which is growing rapidly.
Nvidia's primary chance of catching Apple and beating it to the $5 trillion mark is due to its rapid growth. Despite many investors worrying that Nvidia's growth would slow down, it recently reported that its fourth-quarter FY 2025 (ended January 26) revenue rose 78% year over year, with earnings per share (EPS) increasing 82%. Furthermore, management expects Q1 revenue to be around $43 billion, indicating around 65% growth.
Nvidia's management is known for issuing conservative guidance for the next quarter and actually projected 70% revenue growth in Q4 versus the 78% actual. So, this Q1 projection indicates nearly the same growth projection Q4 had, meaning Nvidia's growth is barely slowing.
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This is a bullish sign for investors and could be what continues to propel it toward that $5 trillion mark. As for valuation, despite growing substantially faster than Apple, the stock is valued at a lower price tag.
This doesn't make much logical sense, and I think it indicates that Nvidia's stock is greatly undervalued for its growth. It's like the market has gotten tired of Nvidia posting ridiculous growth quarter after quarter and wants to look to the next big thing.
So, can Nvidia beat Apple to the $5 trillion mark? I'd say yes, as long as it keeps its growth rate up. Looking two fiscal years ahead, we get these revenue projections:
If we multiply those projected revenue levels by their current profit margins, we get the net income projection for both companies. In two fiscal years, Apple will generate $115 billion in profits, while Nvidia will be at $132 billion. So, if these projections hold, there should be no argument that Apple should be valued higher than Nvidia in two years.
Apple's revenue also has no chance of accelerating to Nvidia-like levels, cementing that Nvidia should beat Apple to the $5 trillion market cap as long as its growth holds.
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Keithen Drury has positions in Home Depot and Nvidia. The Motley Fool has positions in and recommends Apple, Home Depot, Netflix, and Nvidia. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
Which Will Win the Race to $5 Trillion: Apple or Nvidia Stock? was originally published by The Motley Fool
