Earlier this year, Microsoft overtook Apple as the world's most valuable company. With a market value north of $3 trillion, Microsoft is in a class of its own -- for now.
Semiconductor and data center superstar Nvidia (NVDA +2.59%) is the world's third-most-valuable company. So far in 2024, its market cap has soared 127%. To frame this in terms of absolute dollars, consider that the company has added over $1.5 trillion in market cap this year.
Recently, media personality and stock analyst Jim Cramer posited the idea that Nvidia might overtake Microsoft as the world's biggest enterprise. Could he be right? Let's find out.
NASDAQ: NVDA
Key Data Points
The path to the trillion-dollar club
Microsoft was founded nearly 50 years ago. The company revolutionized personal computing through its Windows operating system, and over the years has grown into one of the tech realm's most diversified businesses.
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 poured billions into OpenAI, the start-up developing ChatGPT.
The evolution of Microsoft from primary a PC business to a company operating across a multitude of industries has helped unlock new sources of growth. This dynamic directly correlates to Microsoft's rising valuation.
Nvidia is a much younger company than Microsoft. Founded in 1993, it started out as a computer graphics company focusing on gaming. Today, I'd wager that you are most familiar with Nvidia due to 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 provider of data center services. Nvidia is involved in robotics, enterprise software, autonomous driving, and more. The company is also an investor in unicorn start-ups Figure AI and Databricks.
Considering its diverse set of businesses and opportunities, Nvidia has taken a path to the trillion-dollar club that is strikingly similar to Microsoft's despite the company's seemingly recent meteoric rise.
Image Source: Getty Images
Will Nvidia become the world's largest company?
The chart below illustrates long-term trends in market cap between Microsoft and Nvidia. The key thing to look at here is the pace of growth.
While Microsoft has a comfortable lead of roughly $300 billion, the slope of Nvidia's line is far steeper than Microsoft's. Looked at another way, if Nvidia keeps its current growth rate, then it should handily eclipse Microsoft as the world's most valuable company.
NVDA market cap data by YCharts
With that said, I caution investors from chasing any momentum. Both Microsoft and Nvidia have built diverse businesses. Furthermore, each company is using artificial intelligence (AI) to stitch together its various platforms and derive new avenues of growth.
Nevertheless, there are some key differences. Microsoft has a rich history of acquisitions that have paid off handsomely. But with that said, the company has continued to bolster its products and services via new investments -- namely ChatGPT.
My point here is that Microsoft is continuing to generate growth from assets it acquired several years ago as well as newer investments that it is yet to fully monetize. For this reason, I see Microsoft as a generational opportunity despite its seemingly mature and blue chip identity.
On the flip side, Nvidia has done a nice job deploying excess profits and expanding beyond chips and data center operation. But the company's investments in areas such as humanoid robotics and data analytics software have served as more of a headline-grabber for the time being.
Sure, 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 on the hope that it one day becomes more valuable than Microsoft. Even if that happens, Microsoft could always regain the crown. As I recently wrote, a small investment of just $1,000 at Nvidia's IPO is now worth more than $1 million.
By expanding outside of gaming and becoming a leader in semiconductors, computing, and AI, Nvidia has been able to supercharge its growth, which has resulted in robust shareholder returns. The important theme here is that investors should be thinking about long-term potential when assessing opportunities.
Whether it becomes the biggest business in the world is moot. Considering that the company is breaking ground in new areas of the AI landscape and the fact that it is seen as the market leader for chips right now, I'm optimistic that its growth prospects are strong. For those reasons, Nvidia looks like an appealing investment to hold over a long time horizon.
