Nvidia supplies the world's best artificial intelligence (AI) chips for data centers. Demand is heavily outstripping supply, sending the company's sales -- and its stock price -- surging over the last couple of years. In fact, on July 9, Nvidia became the first company in history to achieve a market capitalization of $4 trillion.
But Microsoft (MSFT +0.61%) is nipping at Nvidia's heels in terms of valuation. Its stock has soared by a whopping 686,858% since its initial public offering (IPO) in 1986, and the company's market cap is now over $3.7 trillion.
In other words, Microsoft stock needs to gain only 8% more to place the company alongside Nvidia in the $4 trillion club. Here's why its growing presence in AI software and infrastructure could fuel that move.
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Microsoft developed a powerful AI assistant called Copilot
Since 2019, Microsoft has invested around $14 billion in ChatGPT developer OpenAI. It has used the start-up's latest large language models (LLMs) to craft its own AI assistant, called Copilot, which is embedded in almost all of its flagship software products. Copilot is accessible for free through Windows, Bing, and Edge, and it's available as a paid add-on in a host of other products, creating new revenue streams for Microsoft.
For instance, enterprises can add Copilot to their Microsoft 365 subscription for an additional monthly fee, where it can boost their employees' productivity in applications such as Word, Excel, and Outlook. Enterprises around the world pay for more than 400 million 365 licenses, so the Copilot add-on could generate billions of dollars in recurring revenue over time. During the fiscal 2025 third quarter (ended March 31), the number of organizations using Copilot for 365 tripled compared to the year-ago period, so uptake has certainly been rapid so far.
Then there is the Copilot Studio platform, which enables organizations to create custom AI agents to suit their workflows. For example, a business can create one agent to deal with customer service queries on their website and another agent to help manage their logistics network. The platform had over 230,000 customers at the end of the fiscal 2025 third quarter, and I expect that number to climb significantly as AI adoption becomes more widespread.
AI could drive a long-term acceleration in Azure cloud revenue
Microsoft's AI opportunity in the cloud might be even bigger than the opportunity created by Copilot. Its cloud computing platform, Azure, offers hundreds of digital services to enterprises, helping them with everything from simple data storage and web hosting to more complex tasks such as software development. Now, it provides a growing list of tools that enterprises need to fuel their AI ambitions.
Microsoft operates centralized data centers filled with the latest graphics processing units (GPUs) from suppliers like Nvidia, and it rents the computing capacity to enterprises that use it to train and deploy AI applications. Microsoft spent over $60 billion to build AI infrastructure during the first three quarters of fiscal 2025 to meet demand. It sounds like a massive number, but CFO Amy Hood says there is an eye-popping $315 billion order backlog from customers who are waiting for Microsoft to bring more data centers online.
NASDAQ: MSFT
Key Data Points
Besides AI hardware, Azure also offers access to the latest third-party LLMs from leading developers like OpenAI. Enterprises can plug their internal data into these models to create custom AI software to suit their needs. Using a ready-made LLM is much faster (not to mention cheaper) than building a model from scratch.
Azure revenue grew by 33% year over year during the fiscal 2025 third quarter, which marked an acceleration from the 31% growth it delivered in the second quarter three months earlier. AI services accounted for a record-high 16 percentage points of that growth, which highlights just how important this segment has become to Microsoft's cloud division. In fact, if not for AI, Azure's revenue growth would probably be decelerating sharply.
Microsoft could be the next member of the $4 trillion club
Microsoft's $3.7 trillion market cap makes it the world's second-largest company behind Nvidia, and it's comfortably ahead of third-place Apple, which is worth $3.2 trillion. Microsoft stock isn't cheap right now, so it may take some time to gain the final 8% it needs to reach the $4 trillion milestone, but I predict it will beat Apple and every other company to the punch.
At the time of this writing, Microsoft stock is trading at a price-to-earnings (P/E) ratio of 38.7, which is a premium to its five-year average of 33.4. However, Wall Street's consensus estimate (provided by Yahoo! Finance) suggests the company's earnings per share could grow by 13% during fiscal 2026 (which officially started on July 1), placing its stock at a forward P/E ratio of 33.1:
MSFT PE Ratio data by YCharts. PE Ratio = price-to-earnings ratio.
In other words, Microsoft stock would have to climb by around 17% over the next 12 months just to maintain its current P/E ratio of 38.7, which isn't out of the question, considering the strong momentum in the company's AI products and services. Since the stock market is a forward-looking machine, I think it's possible for Microsoft shares to climb by 8% over the next six months or so, provided its quarterly financial results continue to come in as expected (or better).
As a result, I think Microsoft is likely to be the next member of the $4 trillion club.
