Mrzorro
07-09

Nvidia vs. Microsoft: Who Will Hit $4 Trillion Market Cap First?


Due to the development of AI, $Microsoft(MSFT)$   and $NVIDIA Corp(NVDA)$   are both rushing towards a market value of $4 trillion, hoping to form the most top-tier club in the stock market. After $4 trillion, $5 trillion, and even $10 trillion may also be seen in the future. Outside of the M7 companies, AI stars such as OpenAI and Anthropic may also join the giants club at any time with future IPOs.


Nvidia: Higher AI exposure with net profit in a single quarter expected to surpass Microsoft

Nvidia's value has soared due to its unique position in the AI value chain. As a "shovel seller" in the AI "arms race," this makes Nvidia's growth story simple and straightforward.

Over the past five years, Nvidia's sales have exploded nearly tenfold, from $5 billion in revenue in 2021 to $44 billion in Q1 2025. Net profit has grown at an even steeper rate to $22 billion per quarter, with Q1 net profit impacted by an H20 provision of about $5 billion, closely approaching Microsoft's $25 billion.

As Nvidia's revenue growth rate is still expected to be significantly higher than Microsoft's (50% year-over-year expected in Q2, gradually slowing in subsequent quarters), it is very likely that Nvidia's quarterly net profit will surpass Microsoft in the next few quarters.

Microsoft's intelligent cloud services, productivity and business processes (Office), and personal computing (Windows) are the three major segments. Only the intelligent cloud business, especially the Azure cloud platform, has clearly benefited from AI pull, maintaining a growth rate of over 30% in recent quarters.

Dragged down by other businesses, Microsoft's overall revenue growth rate is only in the 10%-20% range.


The concerns and strategies of both

In terms of valuation, both currently have very close dynamic PEs. Nvidia, under a significantly higher growth rate in the past few years, has not enjoyed a premium relative to Microsoft, mainly because the market is worried or unclear about its long-term competitive advantage.

For the demand for computing power on the training side, Nvidia is expected to maintain a relative monopoly under the CUDA ecosystem; and the potential for multimodal and embodied intelligence is huge.

However, on the inference side, Nvidia's technology gap is being caught up by $Advanced Micro Devices (AMD.US)$. Giants also do not want to be pinched by Nvidia, and continue to invest in self-developed ASICs. In the future, Nvidia's market share on the inference side is expected to face pressure from AMD and AVGO $Broadcom (AVGO.US)$ .

One of Nvidia's responses is to recently focus on cloud platforms . If cloud business revenue contributes to a certain proportion, it may bring large support for valuation. Because compared to the hardware sales model of GPUs, the highly reproducible revenue stream of cloud business will have a much higher valuation multiple.

For Microsoft, the growth of Azure cloud cannot be separated from the pull of the OpenAI partnership. Currently, the incremental revenue OAI brings to Microsoft includes inference revenue (i.e., OAI's inference costs), OAI's 20% revenue share, and Azure OpenAI API revenue.

But in the medium to long term, OpenAI hopes to transform into a standard for-profit company, which may lead to a restructuring of its relationship with Microsoft, who is both a funder and a competitor, with a new revenue-sharing and cooperation agreement expected to be renegotiated by 2030. As OAI and Oracle-led Stargate computing facilities gradually come into operation, OAI's voice seems to be getting stronger.

Microsoft's strength is partly due to its cloud + AI synergy, the high stickiness of the ecosystem advantage of the largest PaaS platform enterprise; on the other hand, Microsoft's self-developed ASIC chips and organizational innovation capabilities such as large models will also be key factors determining the future direction of this giant.


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Comments

  • Merle Ted
    07-10
    Merle Ted
    NVDA continues to reward patient investors like few other stocks ever have.
  • MurielRobin
    07-09
    MurielRobin
    Awesome insights on these two giants! [Wow]
  • Valerie Archibald
    07-10
    Valerie Archibald
    MSFT finally did it we broke 500
  • NancyZhang
    07-09
    NancyZhang
    It's a tough call
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