Let's face it: 2024 has been all about the megacaps. Nvidia (NVDA 0.33%) is up 147% year to date; Meta Platforms is up 44%; Alphabet is up 33%.
Moreover, Nvidia, Apple, Microsoft, Amazon, Alphabet, and Meta Platforms now boast a combined market cap of $15.6 trillion. That's roughly equivalent to the size of the Eurozone economy, which has an annual gross domestic product of $15.4 billion, according to the latest estimates from the World Bank.
So, let's compare two of the best megacaps, Nvidia and Microsoft (MSFT 2.77%), to see which is better positioned to rule the second half of 2024 -- and beyond.
Image source: Getty Images.
Nvidia
No company has experienced a more remarkable growth in its market cap over the past two years than Nvidia. The semiconductor giant has added a staggering $2.7 trillion in value, catapulting it to the position of the most valuable company on Earth, if only briefly.
NASDAQ: NVDA
Key Data Points
Its rise is almost entirely thanks to the surge in demand for artificial intelligence (AI) and the hardware behind it. Nvidia designs graphics processing units (GPUs). These powerful devices are often linked together by the thousands -- even hundreds of thousands -- within data centers to help train the latest and greatest AI models.
While there are other companies in the GPU design space, Nvidia enjoys several key competitive advantages. The trust and familiarity AI developers have with Nvidia's GPUs and its software make it challenging for them to switch to another supplier. Moreover, Nvidia's extensive experience in GPU design prior to the AI boom gives it a unique edge over its competitors.
Microsoft
Despite the attention garnered by Nvidia's rapid ascent, it's important not to overlook Microsoft's impressive stock performance. The company once again holds the title of the most valuable company on Earth, a position it regained after briefly being overtaken by Nvidia. To maintain this lead, Microsoft is demonstrating its adaptability to the evolving tech landscape, particularly the AI revolution.
NASDAQ: MSFT
Key Data Points
On that front, Microsoft has already begun integrating AI into its signature software applications. It now offers a generative AI assistant through its Microsoft Copilot add-on, which can analyze data, respond to queries, create images, and generate code.
What's more, Microsoft diverse business segments provide a layer of protection, should the AI revolution falter. The company has a massive cloud services unit and a successful gaming division among various other business segments.
Which stock is a better buy in the second half of 2024?
Simply put, both Nvidia and Microsoft are outstanding companies. They generate billions in revenue, profits, and free cash flow. They're also led by some of the top CEOs on the planet: Satya Nadella at Microsoft and Jensen Huang at Nvidia.
However, there are differences to evaluate.
For one, Nvidia's valuation is approaching record highs. Its price-to-sales (P/S) ratio is now 39x -- more than double its 10-year average of 15x.
Meanwhile, Microsoft's P/S ratio is also historically high at 14x. However, that value is less than half of Nvidia's on an absolute basis.
MSFT PS Ratio data by YCharts
In other words, both stocks are historically expensive, but Nvidia is far more costly in a head-to-head comparison.
At any rate, the rapid growth of the GPU market is what investors are counting on to bring Nvidia's valuation down. And while those growth estimates are impressive (analysts expect Nvidia's sales to rise 98% over last year), any signs of slowing growth could lead to a sharp sell-off in Nvidia shares.
In conclusion, I prefer Microsoft, given the stock's more reasonable valuation at current levels. That said, long-term Nvidia investors shouldn't bail on the stock now. Rather, they should remember that one of the keys to successful buy-and-hold investing is to let winners run.
