The $4 trillion club is still awaiting its founding member, and although there is no way to know for sure which company will get there first, the following three names likely have the most realistic chance:
- Apple: Currently valued at $3.5 trillion.
- Nvidia: Currently valued at $3.1 trillion.
- Microsoft (MSFT +4.64%): Currently valued at $3.08 trillion.
Even though Apple is closest to the mark, Nvidia is generating enough growth to potentially reach $4 trillion first, thanks to its leadership position in the artificial intelligence (AI) hardware industry.
But the candidate I want to focus on today is Microsoft because its efforts to weave AI into its portfolio of legacy products are starting to yield incredible results. During its fiscal 2025 second quarter (ended Dec. 31), the company's AI cloud revenue alone soared by 157%.
There is no guarantee that Microsoft will beat Apple or Nvidia to the $4 trillion milestone, but here's why I think it has the most potential to not only get there eventually but stay there for the long term.
Image source: Getty Images.
Microsoft's Copilot AI assistant is experiencing incredible demand
Microsoft invested around $14 billion in ChatGPT creator OpenAI since 2019, and it used some of the start-up's latest models to create its Copilot virtual assistant. Microsoft embedded Copilot into flagship software products like Windows, Edge, and Bing, which can be used to answer complex questions and even generate images, free of charge.
However, Copilot is also available as a paid add-on for customers who use products like the 365 productivity suite, which includes applications like Word, Excel, and PowerPoint. Enterprises around the world pay for over 400 million 365 licenses for their employees, and practically all of them are candidates to add Copilot.
Microsoft's Q2 results suggest demand is rapidly climbing. The company said customers who bought Copilot during its first quarter of availability 18 months ago have since expanded their seats by a whopping tenfold. Plus, their employees used Copilot 60% more frequently in Q2 than they did in the fiscal 2025 first quarter.
Moreover, Microsoft says 160,000 organizations used its Copilot Studio platform, which allows them to create custom AI agents. An agent can be deployed into almost any software application that employees use to complete their jobs, and they are capable of doing everything from summarizing virtual meetings, to onboard new team members. During Q2, companies created over 400,000 custom agents, which was double the number they created in Q1.
NASDAQ: MSFT
Key Data Points
Azure AI revenue absolutely soared during Q2
Copilot is only one piece of Microsoft's AI strategy. The company's cloud computing platform, Azure, has become a go-to destination for businesses seeking computing capacity from state-of-the-art data centers and ready-made large language models (LLMs) from third-party developers like OpenAI. They are two of the main ingredients needed to build AI software.
Azure's overall growth is increasingly driven by AI revenue, which soared by 157% during Q2 compared to the year-ago period. That meant Azure AI alone accounted for 13 percentage points of the Azure cloud platform's overall revenue increase of 31%:
Demand for data center capacity from AI developers continues to exceed supply, so Microsoft is investing heavily in building new infrastructure. The company has already allocated $42.6 billion to capital expenditures (capex) in the first six months of fiscal 2025, most of which went toward data center infrastructure and chips from suppliers like Nvidia. That followed $55.7 billion in capex spending during fiscal 2024.
Azure AI's revenue is a good way for investors to assess the payoff Microsoft is earning for all of that spending. As long as it continues to contribute an increasing amount of growth to the Azure cloud business overall, the company's substantial investments make sense.
Nvidia CEO Jensen Huang believes cloud operators could earn $5 for every $1 they spend on his company's AI hardware (over four years), so if he's right, Microsoft's capex spending could result in hundreds of billions of dollars in new revenue.
Microsoft's path to the $4 trillion club
Microsoft stock trades at a price-to-earnings (P/E) ratio of 33.2, which is roughly in line with the 33.3 P/E ratio of the Nasdaq-100 index. In other words, you could argue that Microsoft is fairly valued relative to its big-tech peers at the moment.
If we assume Microsoft's P/E ratio remains constant from here, it has to grow its earnings per share (EPS) by 33% to warrant a valuation of $4 trillion. Since it has grown its EPS by an average of 20.6% annually over the past decade, it could get there in less than two years.
With that said, the company is growing below trend right now, partially due to its enormous AI capex spending, which is eating into its earnings. It's on track for an EPS increase of 11.5% in fiscal 2025, followed by a 14.5% increase in fiscal 2026, according to Wall Street's consensus forecast (provided by Yahoo). If its 14.5% growth rate persists, Microsoft could become a $4 trillion company during fiscal 2027 (two and a half years from now).
However, its stock also trades at a discount to both Apple and Nvidia, which are the only other two companies to cross the $3 trillion valuation milestone. If its P/E ratio increases (a phenomenon called multiple expansion), it could enter the $4 trillion club much sooner. This typically happens when investors see a company's growth accelerating, and AI could be the catalyst to make it happen for Microsoft.
Microsoft says its total AI revenue across all of its businesses is now at an annual run rate of $13 billion (based on its Q2 result, multiplied by four), which is up by an eye-popping 175% compared to the year-ago period.
It's still a fraction of Microsoft's overall revenue, which came in at $245 billion in fiscal 2024, but if AI revenue continues to increase by triple-digit percentages, it won't be long before it's a major driver of the company's overall growth at the top and bottom line.
