Nvidia vs. Microsoft Stock: Which Will Be the First $4 Trillion Company?

Core Insights - Apple reached a market capitalization of $3.9 trillion but did not become the first $4 trillion company, while Nvidia and Microsoft are positioned to potentially reach that milestone [1][2] Nvidia's Position - Nvidia is currently the closest company to $4 trillion, being just over 3% away as of July 3 [4] - Nvidia's stock is more volatile and has shown significant recovery, being up over 18% year to date after a decline of around 30% earlier in the year [6] - The company's earnings have surged from under $10 billion to $76.8 billion in a few years, indicating strong growth [9] Earnings Growth and Valuation - Earnings growth and investor sentiment are the primary drivers of stock price appreciation, with Nvidia and Microsoft benefiting from increasing earnings and premium valuations [8] - Nvidia's valuation remains reasonable due to its dominant market share in AI-related products, allowing it to convert over half of its sales into profit [12][13] - Even with a projected earnings growth of 25% per year, Nvidia's P/E ratio could decrease significantly over five years, indicating potential for continued investment appeal [15][18] Microsoft’s Stability - Microsoft offers a more balanced investment option with a lower P/E ratio and diverse earnings sources, including cloud computing and software [20][21] - The company has a consistent capital-return program, including stock buybacks and dividend increases, which may appeal to long-term investors [22] Investment Considerations - Both Nvidia and Microsoft are seen as strong companies that could surpass $4 trillion in market cap, but their stock prices are rising faster than earnings growth, creating pressure to meet investor expectations [23]