On Tuesday June 18, Nvidia (NASDAQ: NVDA) passed Microsoft (NASDAQ: MSFT) to become the most valuable publicly traded company in the world for the first time ever. At the time of writing, Nvidia shares have risen more than 200% in the past year and are now worth more than $3.3 trillion.
Now that the stock is the most valuable in the world (based on market cap), many investors are probably wondering whether to sell or hold on. Some on the sidelines might even wonder if it’s too late to buy. Perhaps history can be a guide in making these decisions.
When it comes to the most valuable stocks listed on a US stock exchange, four other companies have taken the crown over the past thirty years: General Electric, which is now GE Aviation (NYSE: GE),Microsoft, ExxonMobil (NYSE:XOM)And Apple (NASDAQ: AAPL). And investors might be pleasantly surprised by what happened to these stocks after they reached the top.
Nvidia could stay on top for a while longer
On September 15, 1998, Microsoft overtook General Electric as the most valuable stock for the first time. General Electric had been the top company continuously for several years, according to data from the nonprofit American Business History Center.
In turn, Microsoft stood alone at the top of the rankings for a few years. Furthermore, its stock has more than doubled in less than two years since it was first passed over by General Electric.
This is the first lesson from history: once a company reaches the top, it usually stays at the top for several years. That was the case for General Electric and Microsoft.
And so did ExxonMobil and Apple. If the historical pattern is followed, Nvidia stock will likely enjoy an extended period at the top as well.
Once a company initially becomes most valuable, history shows that the stock price has usually not yet reached its peak. For example, in February 2005, ExxonMobil topped General Electric. From then on, the oil company’s shares would rise another 60% in the coming years and 75% in the following decade.
Apple overtook ExxonMobil in August 2011. In the five years prior to taking the top spot, its shares rose about 500%, which is spectacular. Many investors probably thought they had missed the boat. But it didn’t stop there: over the next five years, it doubled again.
Therefore, if history is any guide, Nvidia stock could enjoy several years at the top and continue to rise in value.
History has one more thing to show investors
Perhaps the most surprising thing in history is that the previous most valuable stocks outperformed the S&P500 for the next five years after they reached the top.
|
Company |
Performance after five years |
Similar performance |
Percentage of points |
|---|---|---|---|
|
Microsoft |
5% |
(2%) |
7 |
|
ExxonMobil |
11% |
(8%) |
19 |
|
Apple |
102% |
86% |
16 |
|
Nvidia |
? |
? |
? |
Return data according to YCharts. Chart by author. *Alpha refers to a stock’s performance relative to a benchmark (in this case the S&P 500) and is expressed in percentage points.
It’s important to zoom out and think Why this is true. That’s because a company doesn’t just become the most valuable in the world. Something good must be happening with the company. And whatever trends are in the company’s favor usually last several years.
For Microsoft, it has swept the PC revolution to take the top spot. ExxonMobil benefited from an extreme and prolonged spike in oil prices. And Apple was at the forefront of the smartphone trend. These were the material drivers of any business, playing out over years, not days.
Nvidia is benefiting from the increasing adoption of artificial intelligence (AI). Even though there is a lot of over-the-top hype surrounding this trend, important things are happening in the field of AI, and many companies will likely continue to experiment with applying the technology in the coming years. This means that things could continue to be good for Nvidia, leading to more market gains.
As an investor who places a heavy emphasis on value, the valuation of Nvidia stock makes me personally quite nervous. Its market capitalization is over $3 trillion and trades at an extreme price-to-sales ratio (P/S) of 42. In the history of the stock market, there has never been such a large company with such a high valuation . . For perspective, Nvidia’s valuation is currently triple Microsoft’s valuation in second place.
Setting aside my discomfort with the valuation, I can’t deny that history says Nvidia stock hasn’t peaked yet. It could stay at the top for several years. And from here on out, it could outperform the S&P 500 as the AI trend continues to take hold.
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Jon Quast has no position in any of the stocks mentioned. 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.
Nvidia just passed Microsoft to become the world’s most valuable stock. Here’s what history says happens next. was originally published by The Motley Fool
