Investing

Prediction: 1 Stock That Will Be Bigger Than Apple 3 Years from Now (Hint: Not NVDA)

Chris MacDonald

Published: January 23, 2025 7:35 am

Currently the second largest company in the world in terms of market capitalization, Apple (NASDAQ:AAPL) remains a core portfolio holding for most active and passive investors alike. That’s because, given how most index funds and retirement portfolios are constructed, index weightings often drive portfolio weightings. So, Apple continues to be an integral stock many investors watch, for good reason.

However, the company’s status as the most valuable company in the world has come under fire in recent years, courtesy of other high-flying tech giants. Microsoft (NASDAQ:MSFT) is one such company, and a competitor with a market capitalization that’s currently less than 10% away from Apple’s at the time of writing. 

Of course, we can’t forget about Nvidia (NASDAQ:NVDA) being in the mix (as it jumps between the largest and second largest publicly traded company). But over the next three years, I think there’s reason to believe Microsoft could be the one to dethrone Apple and take top spot (likely maintaining its lead over Nvidia, but we’ll see).

Here’s why I think investors are right to remain bullish on Microsoft over the medium-term.

Key Points About This Article:

• Apple remains the world’s most valuable company, though other tech giants are nipping at the company’s heels right now.
• Here’s the bull case behind why Microsoft could once again take top spot in the market, and hold this position over the next three years.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Microsoft Is a Major AI Player

Much of the recent increase we’ve seen in the market has come thanks to AI. The rise of chatbots, and other AI programs capable of answering questions and holding human-like conversations, has spurred a great deal of interest from consumers and retail investors. Initially praised for their quick, basic information delivery, the next evolution of generative AI is represented by Microsoft Copilot. This AI suite boosts workplace productivity by handling tasks like drafting emails, creating presentations, debugging code, and generating images.

Microsoft continues to highlight its focus on developing advanced AI agents capable of handling complex multi-step tasks in its earnings calls. And as the company continues to introduce new AI agents and innovations, such as Microsoft’s Magentic-One, an “Orchestrator” that coordinates multiple AI agents performing tasks like browsing, coding, or data searching, there’s a lot to like about this company’s overall growth potential over the long-term. 

Additionally, it’s worth noting that Microsoft’s Copilot Studio now allows customers to create autonomous agents and offers prebuilt options like sales qualification and supplier communication tools. Since November, over 100,000 organizations have adopted Microsoft’s AI agent tools, integrating with 1,400 third-party systems and utilizing 1,800 language models. Thus far, the response has been positive. Indeed, most customers have reported significant savings and productivity boosts, underscoring the potential of agentic AI.

Premium Valuation Makes Sense

MSFT’s valuation remains premium, trading at 32.5 times projected earnings, slightly below its decade average and comparable to Apple. While valuation matters, long-term investors may find short-term price-to-earnings concerns less significant over time. High-quality companies often justify elevated multiples.

Microsoft’s 2024 gains of 12.1% lagged behind the S&P 500 and peers, though its five-year performance outpaced the index. The company’s diversified business spans Productivity (Microsoft 365, LinkedIn), Intelligent Cloud (Azure, GitHub), and Personal Computing (Windows, Xbox). Its clear growth vision underscores its market strength.

Microsoft demonstrated strong financial performance, with all segments contributing to growth. In Q1 fiscal 2025, Productivity and Business Processes led with 43.2% of revenue and a 58.3% operating margin. Intelligent Cloud accounted for 36.7% of revenue at a 43.6% margin, while More Personal Computing brought 20.1% of revenue with a 26.8% margin. AI advancements in Microsoft 365, Microsoft Cloud, and GitHub fueled market growth alongside ongoing investments in R&D and infrastructure.

Recent Microsoft Updates

Microsoft initiated layoffs across security, devices, sales, and gaming units, impacting an unspecified number of employees. Notifications began Tuesday in the security division led by Charlie Bell, a former Amazon cloud executive. The company stated these cuts were unrelated to previous reports targeting underperforming staff.

Microsoft continues to prioritize security company-wide under its expanded Secure Future Initiative, launched after significant security lapses, including breaches by Chinese hackers. CEO Satya Nadella emphasized security as a top performance metric, urging employees to prioritize it above other objectives.

In other updates, Microsoft CEO Satya Nadella announced a $3 billion investment in India over two years to boost cloud and AI infrastructure, including new data centers, and train 10 million people in AI skills. This initiative aligns with India’s vision of becoming a developed nation by 2047, focusing on AI innovation and skilling. Microsoft India’s president, Puneet Chandok, highlighted the company’s role in advancing AI across industries and communities, reinforcing its commitment to supporting India’s global competitiveness.

Microsoft’s responsible AI strategy is built on six principles: fairness, safety, privacy, inclusiveness, transparency, and accountability. Expanding its AI role, Microsoft aims to provide accessible AI technology aligned with its AI Access Principles. The company is boosting cloud and AI infrastructure in India, adding a fourth datacenter region by 2026 to support the growing AI ecosystem and meet the demands of start-ups and researchers.

MSFT Stock Looks Like a Buy

In my view, Microsoft is the clear likely winner from a continued focus on AI innovation over the next three years and beyond. For investors looking for mega-cap tech stocks with meaningful and sustainable catalysts (at least in the world of AI development), I think there’s a lot more going on at Microsoft that’s newsworthy, and that should generate meaningful long-term value for shareholders. Apple may continue to lose the AI race, and if further consolidation continues to take place within the world of AI, Microsoft’s very deep pockets could become a cause for concern for its competition over time. That’s my view right now, anyway.