Equity analyst Dan Ives has made a quite a few prescient calls in his career. In the last year alone, he predicted the Nasdaq Composite would hit 20,000, and he remained bullish on Palantir despite widespread skepticism. Lo and behold, the Nasdaq hit 20,000 in 2024, and Palantir was the best-performing stock in the S&P 500 index.
This year, Ives thinks Apple(NASDAQ: AAPL) and Microsoft(NASDAQ: MSFT) will become the first $4 trillion companies, as detailed below:
Ives recently raised his 12-month target on Apple to $325 per share. That implies about 34% upside from its current share price of $242. If he is correct, Apple would have a market value of $4.9 trillion by year-end in 2025.
Ives has set Microsoft with a 12-month target of $550 per share. That implies about 31% upside from its current share price of $419. If he is correct, Microsoft would have a market value just above $4 trillion by year-end in 2025.
Here’s what investors should know about Apple and Microsoft.
In 2024, consultancy Brand Finance ranked Apple as the most valuable brand in the world for the third time in four years. Apple is best known for its premium electronics devices, but the company has also built loyalty through its services business, which includes value-added products like iCloud storage, Apple Pay, and Apple TV+.
Apple was slow to respond to the artificial intelligence (AI) boom, but the company late last year introduced Apple Intelligence, a suite of AI features available on newer iPad, iPhone, and MacBook models. While the initial response has been somewhat muted in terms of consumer demand, CEO Tim Cook recently told analysts it would usher in a “new era for the iPhone.”
Dan Ives is equally optimistic. He thinks Apple Intelligence will be the catalyst that drives a massive upgrade cycle. In fact, Ives in a September interview with Schwab Network predicted Apple would record its strongest iPhone unit sales in history in the next year. And more recently, he said the upgrade cycle could drive the company’s market value to $5 trillion within 18 months.
Apple reported pretty good financial results in the fourth quarter of fiscal 2024, which ended in September. Revenue rose 6% on mid-single-digit growth in MacBook, iPad, and iPhone sales, and double-digit growth in services. Meanwhile, non-GAAP net income climbed 9% to $25 billion, but earnings per share jumped 12% as the company continued to repurchase stock aggressively.
Apple Intelligence could certainly be a major catalyst in the coming years, especially given that Apple is the revenue leader in the smartphone market. But management has yet to articulate a long-term strategy that incorporates AI into the services business. Ives says the company will monetize Apple Intelligence with App Store fees as developers build AI into mobile applications. But without some input from management, I find it difficult to be bullish.
Adding to my skepticism, Apple currently trades at 40 times earnings. That is well above the three-year average of 29 times earnings, and the multiple itself is hard to justify when Wall Street expects the company’s earnings to increase at 10% annually in the next three years. Dan Ives has an excellent reputation, but I think investors should wait for a better entry point, or else more evidence that Wall Street has grossly underestimated future earnings.
Microsoft is the largest software company in the world in terms of revenue. While it is best known for its office productivity tools, the company also has a strong presence in other verticals, including business intelligence, enterprise resource planning, and cybersecurity. Microsoft has introduced generative AI copilots that create new monetization opportunities across its software portfolio.
Beyond software, Microsoft has a strong presence in cloud computing. Its Azure unit is the second-largest cloud infrastructure and platform services provider in terms in terms of sales, and it’s well positioned to gain share. Its partnership with OpenAI is a key advantage because it makes Azure the exclusive cloud provider to the AI start-up. That lets Microsoft indirectly monetize ChatGPT usage, and it allows Azure customers to build generative AI applications with OpenAI models.
Microsoft reported reasonably good financial results in the third quarter. Revenue rose 16% to $65.6 billion on strong sales growth in software, cloud services, and advertising, though its acquisition of Activision added 3 points to top-line growth. But GAAP earnings rose just 10% to $3.30 per diluted share as investments in AI infrastructure weighed on gross margin. The company also gave disappointing guidance, causing shares to slide following the report.
One reason for the weak guidance is an anticipated $1.5 billion headwind to income in the current quarter due to its share of losses at OpenAI. But that is a temporary problem. Per the terms of the partnership, Microsoft should not only recoup its $13 billion investment in the AI start-up, but will also collect a hefty portion of its earnings once the company reaches profitability. In other words, the headwind should eventually become a tailwind.
The partnership with OpenAI also creates an onramp to Azure. For instance, usage of Azure OpenAI — a service that lets developers access OpenAI models — more than doubled in the past six months. That has contributed to the company’s ability to monetize AI, and Microsoft is on pace to earn $10 billion in AI revenue in the next quarter. No product in company history hit that milestone faster, according to CEO Satya Nadella.
While the business is solid, Microsoft’s valuation is also expensive. The stock trades at 35 times earnings, a premium to the three-year average of 32 times earnings. And the multiple itself is hard to justify when Wall Street expects earnings to grow at 13% annually in the next three years. Again, Ives has an impressive track record where technology stocks are concerned, but I think investors should wait for a better entry point.
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Trevor Jennewine has positions in Palantir Technologies. The Motley Fool has positions in and recommends Apple, Microsoft, and Palantir Technologies. 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 a disclosure policy.
2 Artificial Intelligence (AI) Stocks to Buy Before They Soar to $4 Trillion in 2025, According to a Wall Street Analyst was originally published by The Motley Fool
Kara Miles is a news writer, who loves to write about politics, health, business, parenting, and finance. She has two kids, who she loves to take on adventures with her. She also loves writing about her hobbies as well.
