This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Nvidia (NASDAQ: NVDA) has been firing on all cylinders over the past two years, and the company just added one more accomplishment to its long list of medals: The chipmaker became the first stock to hit the $4 trillion mark. It now sits as the most valuable company in the world, but others are close behind.
Other corporations will eventually reach that valuation too, perhaps even sooner than many think. And the stock most likely to get to $4 trillion next is Microsoft (NASDAQ: MSFT). Read on to find out why.
Why Microsoft has the clear edge
Most of the members of the "Magnificent Seven" have market caps above $1 trillion, but some are much closer to the $4 trillion mark than others. The two largest companies behind Nvidia are Apple, valued at $3.16 trillion, and Microsoft, at $3.72 trillion. The others are much further behind.
And while there's the possibility that they will soar while these two drop, assuming they all perform relatively similarly in the next few months, Microsoft will get there first simply because it's the closest.
However, Microsoft has an excellent chance of performing better than, at the very least, its closest competitor, Apple. The iPhone maker has been hit hard this year due to the current U.S. administration's trade policies. The Trump administration aims to bring manufacturing back to the United States, which poses a challenge for Apple, as the company outsources most of its manufacturing to countries such as China, a favorite target of Trump's aggressive tariffs, and other Asian nations.
Trump recently doubled down on his threat of aggressive tariffs. Additionally, Apple has fallen behind Microsoft and its tech peers in the artificial intelligence (AI) race. While I think Apple could still perform well over the long run, the company's short-term prospects don't look attractive.
What about Microsoft? The tech leader delivered excellent results during its latest update, which covered the third quarter of its fiscal year 2025, ending on March 31. Microsoft's cloud computing and AI businesses are booming. It has been gaining ground on Amazon in the competitive cloud field.
Further, the company's latest update provided strong guidance, indicating a growing demand for its services, despite a somewhat shaky macroeconomic environment. The smart money is on Microsoft outperforming Apple in the next few months.
Amazon, Alphabet, and Meta Platforms are also performing well, but with market caps of $2.36 trillion, $2.15 trillion, and $1.82 trillion, they are too far behind to make serious runs at the $4 trillion mark before Microsoft.
For all these reasons, Microsoft seems by far the most likely to join Nvidia in the $4 trillion single-company (for now) club next.
To $4 trillion and beyond
$4 trillion isn't a finish line. Once Microsoft reaches that point -- whenever that may be -- there will still be plenty of upside left for the company afterward. In fact, here is another prediction: Microsoft will reach a $10 trillion valuation within the next decade.
From its current levels, that would require a compound annual growth rate of at least 10.4%. That's no easy feat, but Microsoft can pull it off as the company continues to make headway within its two biggest sources of growth: AI and cloud computing.
While the company is already generating significant sales from these businesses, this is likely still the early stages of these industries' growth stories. According to Andy Jassy, CEO of Amazon, more than 85% of IT spending still occurs on-premises. Meanwhile, AI applications reached a new level a little less than three years ago with the launch of ChatGPT by OpenAI, a Microsoft-backed company. Both technologies enable businesses across all industries to reduce costs and increase efficiency.
Companies that don't use cloud computing or AI services might, eventually, become like modern businesses that don't use computers: They hardly exist. That could be the scale of the revolution investors are witnessing, and Microsoft is one of the leaders driving it. Though competition will continue to intensify, the tech giant has a strong competitive edge due to switching costs. Plus, it has already proven it can perform well despite competitive pressure from Alphabet and Amazon.
Microsoft's long-term prospects look attractive thanks to this duo of massive growth drivers. Investors shouldn't buy the stock because it could soon reach $4 trillion. They should purchase it because it will likely continue performing well long after that.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
