What will be the first company of 4 dollars?

• Nvidia and Microsoft strike the door of 4 billions of stock market capitals.

• Nvidia deserves a lot of credit to be the backbone behind the development of AI.

• The AI ​​added to Microsoft’s investment thesis rather than redefining it.

• 10 actions that we love better than Nvidia ›

December 26, 2024, Apple crossed 3.9 billions of dollars in market capitalization, which gave it only 2% to become the first world company of 4 dollars. But it didn’t get there. Apple has recovered in recent weeks but remains down the year to date, while Nvidia (Nasdaq: NVDA) And Microsoft (Nasdaq: MSFT) I just made new heights of all time.

Here is why Nvidia will probably become the first company to exceed 4 billions of dollars of market value, which Nvidia and Microsoft must do to continue to increase the price and if one or the other of the growth actions is a purchase now.

In less than three years, Nvidia has gone from billions to billions of market capitalization. And now it is the closest company to $ 4 billions – just over 3% from the market on July 3.

Nvidia will likely reach 4 dollars billions before Microsoft simply because it is closer to the threshold, and its stock is more volatile. NVIDIA now has more than 18% over a year (YTD), but it fell by around 30% YTD in early April in the worst sale by prices. It is therefore not unreasonable that the action can increase from a few percentage points to the pole of its market capitalization greater than 4 billions of dollars.

The best question is not to know if Nvidia or Microsoft will reach 4 billions of dollars in market capitalization, but rather what each company must do to justify this evaluation.

The two largest engines of equity prices are the growth in profits and the feeling of investors. If the profits increase, investors will probably pay a higher price for the company’s shares. But if investors expect the rate of growth in profits is accelerating, they can be willing to give a title to a primitive evaluation.

Nvidia and Microsoft have been so solid artists in recent years because they have increased income And Investors are willing to pay a bonus price for these companies compared to their profits. Nvidia has increased from less than $ 10 billion in annual net profit to $ 76.8 billion in just a few years. Microsoft has doubled its net income in the past five years, and its stock market has also more than doubled.

For Nvidia and Microsoft to continue to be good investments in the future, the two companies must demonstrate that their growth in profits is durable and not temporary.

NVIDIA has greatly benefited from the rapid rise in technological spending of major technologies on artificial intelligence (AI). NVIDIA has a dominant market share in the supply of high power graphic processing units (GPU) for data centers and associated AI solutions for companies.

Due to the limited offer and high demand, NVIDIA can charge the best dollar for its AI offers, which allows it to convert more than half of its sales in pure profit. And because NVIDIA customers are among the most financially and most budget secure companies in the world (like Microsoft), then Nvidia knows that its customers can afford to spend a ton on AI.

However, this would not be the case if challenges occur for key customers in Nvidia if there is a slowdown at industry level or if competition arrives and erodes the margins of Nvidia. The purchase of Nvidia is now a bet that the company can continue to increase its income even if its margins gradually decrease over time.

The good news is that Nvidia does not have to double its earnings each year to be an excellent purchase. Even if it increases the income to, let’s say, 25% per year, it could always reduce its valuation over time and be a beating on the market. Here is an overview of the way in which the price / benefit / benefit ratio of Nvidia (P / E) would drop from more than 50 to less than 35 years in five years if it increased profits to 25% per year, and the share price won an average of 15% per year.

Under these hypotheses, the course of Nvidia’s action doubles almost in five years, but its triple profits, therefore the P / E ratio decreases considerably.

The main point to remember is that Nvidia does not have to maintain its parabolic growth to be a good investment. However, the action could sell considerably if investors think that an unexpected risk interrupts its growth trajectory. We had a taste of this in April, when Nvidia estimated that it would cause loads of several billion dollars due to prices, and the course of the action plunged in a short time.

In short, investors should only consider NVIDIA if they are confident in sustained IA expenses and the company’s ability to swivel as the market ripens.

Microsoft can be a better choice for investors looking for a more balanced technological actions to buy. Microsoft has a P / E less than Nvidia, and for a good reason, because it does not grow so quickly. However, Microsoft also does not need a lot to go right to continue to grow regularly over time.

The vast majority of NVIDIA income are directly linked to AI. Microsoft has a diversified profile profile, encompassing cloud computing, software, hardware, platforms such as Github, Linkedin and Xbox, as well as other areas. The AI ​​accelerates the growth of Microsoft’s profits and widens its profits, but the company can always do very well even if the investment in AI slows down and the industry matures.

It should also be mentioned that Microsoft regularly buys its stock and has increased its dividend for 15 consecutive years. He therefore has a more balanced capital renewal program than Nvidia, which rewards shareholders by increasing the main company rather than the return capital directly.

Nvidia and Microsoft are exceptional companies. It would not be surprising to see them exceed $ 4,000 billion in market capitalization and continue to build from there. However, investors should be aware that the two companies are seeing their prices increase more quickly than their income is increasing, which puts them pressure to fill the gap between expectations and reality.

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Suzanne Frey, director of Alphabet, is a member of the board of directors of Motley Fool’s. John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of the board of directors of Motley Fool’s. Daniel Foelber has positions in Nvidia. The Motley Fool has positions and recommends Alphabet, Amazon, Apple, Microsoft and Nvidia. The Motley Fool recommends the following options: Long January 2026 Calls $ 395 on Microsoft and Court January 2026 405 $ calls Microsoft. The Motley Fool has a policy of disclosure.

NVIDIA VS Microsoft Stock: What will be the first company of $ 4 Billions? was initially published by the Motley Fool