Is Apple a Better Once-in-a-Generation Investment Opportunity Than Nvidia Right Now?

Apple's (AAPL -1.62%) initial launch of the iPhone was arguably a once-in-a-generation investing opportunity. The world changed afterward -- and Apple's share price skyrocketed.

Many investors probably also view the introduction of ChatGPT as a once-in-a-generation investing opportunity with Nvidia (NVDA -0.36%). The demand for the company's graphics processing units (GPUs) in powering generative artificial intelligence (AI) applications took off and hasn't slowed since.

By definition, such moments with Apple and Nvidia are rare. However, no rule says a company can't have multiple game-changing catalysts during its lifetime. Perhaps both Apple and Nvidia are once again presenting once-in-a-generation opportunities. If so, is Apple a better pick than Nvidia for investors right now?

Apple's and Nvidia's new opportunities

The "new" has long worn off the iPhone. Apple hasn't rolled out truly head-turning technology improvements to its popular smartphone in years. As a result, iPhone upgrades have slowed considerably.

However, Apple's introduction of its new AI capabilities (called Apple Intelligence) could be a major turning point. Thus far, most AI functionality has run in the cloud. With Apple Intelligence, though, AI runs locally on the company's devices.

This approach is known as edge AI. It could be a massive new market opportunity that some analysts believe will spur an iPhone upgrade super cycle.

Unsurprisingly, Nvidia's new opportunity is also related to AI, and it's more of an extension of the company's current opportunity than anything entirely new. Nvidia's next wave of growth could come from an acceleration of AI capabilities that achieves or comes close to achieving artificial general intelligence (AGI) -- a form of AI that matches or exceeds human-level performance.

More powerful AI systems will undoubtedly require more powerful AI chips. Nvidia's GPUs continue to set the bar for performance.

Potential scenarios

How could these AI opportunities pan out for Apple and Nvidia? Let's look at two potential scenarios -- one optimistic and the other pessimistic.

In an optimistic future, Apple's customers will flock to upgrade their iPhones and iPads to take advantage of the company's new AI features. Apple will continue to add capabilities regularly, attracting new customers who switch from rival smartphones. The company will return to double-digit growth and its iPhone ecosystem will become more valuable than ever.

Nvidia will continue to launch faster and faster chips. The pace of the company's innovation will be so rapid that no competitor will be able to keep up. As AI grows more powerful, Nvidia's technology will enjoy increasingly greater demand. The company's revenue, profits, and share price will soar.

In the pessimistic scenario, however, customers will ultimately view Apple Intelligence as merely a novelty. There'll be an initial modest uptick in iPhone upgrades, but nothing more. Apple's growth will be sluggish, at best, and its stock will flounder for years as a once-great company loses its way.

As for Nvidia, AGI or anything close to it may prove to be much more difficult to achieve than imagined. Large language models (LLMs) will reach a plateau in capability, and the demand for AI chips will decline with companies not seeing the desired return on investment.

Meanwhile, Nvidia's rivals and large cloud customers will roll out their own chips that are less expensive and compare favorably on performance with Nvidia's GPUs. Nvidia's market share -- and share price -- will fall sharply.

Apple or Nvidia?

Nvidia has clearly been the better stock in recent years and so far in 2024. But could Apple deliver greater gains going forward? Maybe.

I think the optimistic scenario (or something fairly close to it) is more likely for Apple than the pessimistic scenario. Although Apple's valuation is high, it doesn't have nearly as much projected growth baked in as Nvidia's does.

Some aspects of the pessimistic scenario for Nvidia also seem quite possible. AGI could be much further away than some predict. Other chipmakers are already aiming to challenge Nvidia's AI chip dominance.

If the optimistic scenarios play out for both Apple and Nvidia, I believe Nvidia will continue to be the bigger winner. However, I think the pessimistic scenario is less likely for Apple than for Nvidia.

I won't claim unequivocally that Apple is a better once-in-a-generation investment opportunity than Nvidia. My view is that both stocks should perform well for long-term investors. But for more cautious investors, Apple looks like the better pick.