Nvidia (NVDA 1.28%) and Microsoft (MSFT 1.58%) shares have advanced 18% year to date, while the S&P 500 (^GSPC 0.83%) has gained 6% as of June 30. Some Wall Street analysts expect that momentum to carry the companies to a major milestone in the coming months. Specifically, both could achieve market values of $5 trillion before the end of 2026.
- William Stein at Truist Financial recently set Nvidia with a target price of $210 per share. That implies 33% upside from its current share price of $158. It also implies a market value of $5.1 trillion.
- Dan Ives at Wedbush recently told CNBC Microsoft could be a $5 trillion company within 18 months. That implies 39% upside from its current market value of $3.6 trillion. It also implies a share price of $690.
Here's what investors should know about Nvidia and Microsoft.
Image source: Getty Images.
Nvidia: 33% implied upside
Nvidia develops accelerated computing solutions. The company is best known for graphics processing units, chips that accelerate complex data center workloads like artificial intelligence (AI). Nvidia accounts for about 90% of AI accelerator sales today and analysts generally expect the company to maintain its market dominance for the foreseeable future despite competition from Broadcom and AMD.
Beyond that, Nvidia is also the market leader in networking gear used to support generative AI workloads. The company recently added two major customers in Alphabet's Google Cloud and Meta Platforms, both of which will deploy Nvidia Spectrum-X Ethernet networking platform in their data centers. The company also has a burgeoning software and services business.
Nvidia reported first-quarter financial results that beat expectations on the top and bottom lines. Revenue rose 69% to $44 billion due to robust demand for AI infrastructure, and non-GAAP net income increased 33% to $0.81 per diluted share. Importantly, earnings would have increased more quickly had it not been for new chip export restrictions related to its China business.
Wall Street expects Nvidia's adjusted earnings to increase at 41% annually through the fiscal year ending in January 2027. That makes the current valuation of 50 times adjusted earnings look reasonable. And if Nvidia's earnings do increase at 41% annually, its market value could hit $5 trillion in the next year while its price-to-earnings multiple falls to 46. Patient investors should feel comfortable owning Nvidia at its current price.
Microsoft: 39% implied upside
Microsoft generates most of its revenue from enterprise software and cloud computing. While the company is best known for its leadership in office productivity software, it also has a strong position in enterprise resource planning, business intelligence, and several cybersecurity software verticals. Also, Microsoft Azure is the second largest public cloud in terms of infrastructure and platform services spending.
Central to the company's growth strategy is artificial intelligence. Microsoft 365 Copilot is a generative AI assistant that can summarize content and make recommendations in office applications like Word and Excel. Copilot Studio is a low-code platform that lets customers design custom AI agents. And Azure AI Foundry is a cloud service that lets developers train machine learning models and build AI applications.
Microsoft reported solid financial results in the third quarter of fiscal 2025, which ended in March. Revenue increased 13% to $70 billion on particularly strong momentum in Azure, driven by demand for AI services. In addition, the number of customers using Microsoft 365 Copilot increased threefold. Meanwhile, GAAP net income increased 18% to $3.46 per diluted share.
Grand View Research estimates software-as-a-service revenue will grow at 12% annually through 2030, while cloud services sales increase at 20% annually during the same period. So, Microsoft has a reasonably good shot at achieving double-digit annual revenue growth through the end of the decade.
Indeed, Wall Street estimates Microsoft's earnings will increase at 13% annually through the fiscal year ending in June 2026. However, that consensus still makes the current valuation of 38 times earnings look expensive. Microsoft may reach $5 trillion in the next 18 months, but I would personally avoid buying the stock until the price is more reasonable.
