Earlier this year, Microsoft caught up Apple as the most valuable company in the world. With a market value of more than $3 trillion, Microsoft is in a class of its own for now.
Superstar in the field of semiconductors and data centers Nvidia (NASDAQ: NVDA) is the third most valuable company in the world. So far in 2024, the market capitalization has increased by 127%. To put this in absolute dollar terms, consider that the company added over $1.5 trillion in market cap this year.
Recently, media personality and stock analyst Jim Cramer floated the idea that Nvidia could overtake Microsoft as the world’s largest company. Could he be right? Let’s find out.
The path to the trillion dollar club
Microsoft was founded almost 50 years ago. The company revolutionized personal computing through its Windows operating system and over the years has become one of the most diversified companies in the technology field.
Outside of Windows, Microsoft owns gaming platforms Activision Blizzard and Xbox, social media website LinkedIn, cloud computing infrastructure Azure and software development tool GitHub. More recently, the company has invested billions in OpenAI, the startup developing ChatGPT.
Microsoft’s evolution from a primarily PC company to one that operates across a wide range of industries has helped unlock new sources of growth. This dynamic is directly related to Microsoft’s rising valuation.
Nvidia is a much younger company than Microsoft. It was founded in 1993 and started as a computer graphics company focused on gaming. These days, I bet you’re most familiar with Nvidia for its in-demand graphics processing units (GPUs) or the company’s charismatic CEO, Jensen Huang.
But it is much more than a GPU developer and data center services provider. Nvidia is involved in robotics, enterprise software, autonomous driving and more. The company also invests in unicorn startups Figure AI and Databricks.
Given its diverse businesses and capabilities, Nvidia has blazed a path to the billion-dollar club that’s strikingly similar to Microsoft’s, despite the company’s seemingly recent meteoric rise.
Will Nvidia become the largest company in the world?
The chart below illustrates the long-term trends in market capitalization between Microsoft and Nvidia. The most important thing to look at here is the growth rate.
While Microsoft has a comfortable lead of roughly $300 billion, Nvidia’s slope is much steeper than Microsoft’s. Looked at another way, if Nvidia maintains its current growth rate, it could handily eclipse Microsoft as the world’s most valuable company.
That said, I caution investors not to chase any momentum. Both Microsoft and Nvidia have built several companies. Furthermore, every company is using artificial intelligence (AI) to merge its different platforms and discover new growth opportunities.
Yet there are some important differences. Microsoft has a rich history of acquisitions that have yielded good results. But that said, the company has continued to strengthen its products and services through new investments, namely ChatGPT.
My point here is that Microsoft continues to generate growth from assets it acquired several years ago, as well as from newer investments that it has yet to fully monetize. For this reason, I see Microsoft as a generational opportunity, despite its seemingly mature and blue chip identity.
On the other hand, Nvidia has done a good job of deploying excess profits and expanding beyond chips and data center operations. But the company’s investments in areas like humanoid robotics and data analytics software have served more as headlines for now.
Certainly, these deals could very well propel Nvidia into a new wave of growth. But for now it’s too early to tell.
What should investors do?
I wouldn’t encourage investing in Nvidia in the hope that it will one day become more valuable than Microsoft. Even if that happens, Microsoft can always regain the crown. As I wrote recently, a small investment of just $1,000 in Nvidia’s IPO is now worth more than $1 million.
By expanding beyond gaming and becoming a leader in semiconductors, computing and AI, Nvidia has been able to boost its growth, resulting in robust shareholder returns. The important theme here is that investors should think about the long-term potential when assessing opportunities.
It is doubtful whether it will become the largest company in the world. Given that the company is pioneering new areas of the AI landscape and the fact that it is currently seen as a market leader in chips, I am optimistic that its growth prospects are strong. For these reasons, Nvidia seems like an attractive investment to hold over a long time horizon.
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Adam Spatacco has positions at Apple, Microsoft and Nvidia. The Motley Fool holds positions in and recommends Apple, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Is Jim Cramer right that Nvidia could one day be worth more than Microsoft? was originally published by The Motley Fool
