Nvidia provides the world’s finest synthetic intelligence (AI) chips for knowledge facilities. Demand is closely outstripping provide, sending the corporate’s gross sales — and its inventory value — surging over the past couple of years. In reality, on July 9, Nvidia grew to become the primary firm in historical past to attain a market capitalization of $4 trillion.
However Microsoft (MSFT 0.39%) is nipping at Nvidia’s heels when it comes to valuation. Its inventory has soared by a whopping 686,858% since its preliminary public providing (IPO) in 1986, and the corporate’s market cap is now over $3.7 trillion.
In different phrases, Microsoft inventory wants to achieve solely 8% extra to put the corporate alongside Nvidia within the $4 trillion membership. This is why its rising presence in AI software program and infrastructure may gas that transfer.
Picture supply: Getty Photos.
Microsoft developed a robust AI assistant known as Copilot
Since 2019, Microsoft has invested round $14 billion in ChatGPT developer OpenAI. It has used the start-up’s newest massive language fashions (LLMs) to craft its personal AI assistant, known as Copilot, which is embedded in virtually all of its flagship software program merchandise. Copilot is accessible without spending a dime by way of Home windows, Bing, and Edge, and it is accessible as a paid add-on in a bunch of different merchandise, creating new income streams for Microsoft.
As an illustration, enterprises can add Copilot to their Microsoft 365 subscription for a further month-to-month price, the place it could actually enhance their staff’ productiveness in purposes similar to Phrase, Excel, and Outlook. Enterprises around the globe pay for greater than 400 million 365 licenses, so the Copilot add-on may generate billions of {dollars} in recurring income over time. In the course of the fiscal 2025 third quarter (ended March 31), the variety of organizations utilizing Copilot for 365 tripled in comparison with the year-ago interval, so uptake has definitely been fast up to now.
Then there may be the Copilot Studio platform, which allows organizations to create customized AI brokers to swimsuit their workflows. For instance, a enterprise can create one agent to cope with customer support queries on their web site and one other agent to assist handle their logistics community. The platform had over 230,000 clients on the finish of the fiscal 2025 third quarter, and I anticipate that quantity to climb considerably as AI adoption turns into extra widespread.
AI may drive a long-term acceleration in Azure cloud income
Microsoft’s AI alternative within the cloud is likely to be even larger than the chance created by Copilot. Its cloud computing platform, Azure, presents lots of of digital companies to enterprises, serving to them with every thing from easy knowledge storage and internet hosting to extra advanced duties similar to software program growth. Now, it offers a rising checklist of instruments that enterprises have to gas their AI ambitions.
Microsoft operates centralized knowledge facilities crammed with the newest graphics processing models (GPUs) from suppliers like Nvidia, and it rents the computing capability to enterprises that use it to coach and deploy AI purposes. Microsoft spent over $60 billion to construct AI infrastructure in the course of the first three quarters of fiscal 2025 to satisfy demand. It seems like a large quantity, however CFO Amy Hood says there may be an eye-popping $315 billion order backlog from clients who’re ready for Microsoft to convey extra knowledge facilities on-line.
Apart from AI {hardware}, Azure additionally presents entry to the newest third-party LLMs from main builders like OpenAI. Enterprises can plug their inner knowledge into these fashions to create customized AI software program to swimsuit their wants. Utilizing a ready-made LLM is far sooner (to not point out cheaper) than constructing a mannequin from scratch.
Azure income grew by 33% yr over yr in the course of the fiscal 2025 third quarter, which marked an acceleration from the 31% development it delivered within the second quarter three months earlier. AI companies accounted for a record-high 16 proportion factors of that development, which highlights simply how necessary this phase has develop into to Microsoft’s cloud division. In reality, if not for AI, Azure’s income development would in all probability be decelerating sharply.
Microsoft could possibly be the following member of the $4 trillion membership
Microsoft’s $3.7 trillion market cap makes it the world’s second-largest firm behind Nvidia, and it is comfortably forward of third-place Apple, which is price $3.2 trillion. Microsoft inventory is not low-cost proper now, so it might take a while to achieve the ultimate 8% it wants to succeed in the $4 trillion milestone, however I predict it can beat Apple and each different firm to the punch.
On the time of this writing, Microsoft inventory is buying and selling at a price-to-earnings (P/E) ratio of 38.7, which is a premium to its five-year common of 33.4. Nevertheless, Wall Road’s consensus estimate (offered by Yahoo! Finance) suggests the corporate’s earnings per share may develop by 13% throughout fiscal 2026 (which formally began on July 1), putting its inventory at a ahead P/E ratio of 33.1:
MSFT PE Ratio knowledge by YCharts. PE Ratio = price-to-earnings ratio.
In different phrases, Microsoft inventory must climb by round 17% over the following 12 months simply to take care of its present P/E ratio of 38.7, which is not out of the query, contemplating the robust momentum within the firm’s AI services. Because the inventory market is a forward-looking machine, I believe it is potential for Microsoft shares to climb by 8% over the following six months or so, offered its quarterly monetary outcomes proceed to come back in as anticipated (or higher).
In consequence, I believe Microsoft is more likely to be the following member of the $4 trillion membership.
Anthony Di Pizio has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Idiot recommends the next choices: lengthy January 2026 $395 calls on Microsoft and quick January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure coverage.
