Microsoft’s (NASDAQ: MSFT) proactive strategy on AI adoption appears to be paying dividends as the stock reaches a market capitalization of $4 trillion, but could it steam ahead of Nvidia off the back of its focus on cutting-edge artificial intelligence?
The stock ended July up 26.57% since the beginning of the year, with momentum clearly in favour of the tech giant.
It appears that MSFT has plenty of room to grow further, if a recent research note from KeyBanc analyst Jackson Ader is anything to go by. Ader raised his rating for Microsoft to ‘overweight,’ from ‘standard weight,’ placing a price target of $630 on the tech leader.
Microsoft’s earnings call for Q2 2025 delivered adjusted earnings of $3.65 per share on revenue of $76.4 billion, representing a significant beat on expectations and propelling the stock 9% higher in extended trading and just short of an unprecedented market capitalization of $4 trillion.
The stock’s earnings beat represents the fifth consecutive quarter that Microsoft has beaten Wall Street expectations, and investor confidence has been sent higher off the back of predicted capital expenditures of $100 billion as the company seeks to take advantage of its strong position amid the wider artificial intelligence boom.
As Microsoft seeks to acquire data centers and AI talent, the firm has won over plenty of backers thanks to its strong adoption of the technology. With some ground still to be made on Nvidia, which surpassed a market capitalization of $4 trillion back in July, can MSFT stake a claim to become the world’s strongest AI stock?
Embracing the AI Boom
Microsoft has moved quickly to harness the potential of artificial intelligence. Perhaps the firm’s strongest move in the AI landscape was its $13.75 billion investment commitment in return for a 49% stake in ChatGPT creator OpenAI. At a current post-money valuation of $300 billion, Microsoft has made an implied gain of $133.25 billion.
The company also holds billions worth of Nvidia chips, which are helping to level up its artificial intelligence capabilities throughout a suite of software services, including Microsoft 365 Copilot, which has led to higher revenue per user for Microsoft 365 commercial cloud products like Office productivity and software bundles.
According to CEO Satya Nadella, Microsoft’s Copilot products have 100 million monthly active users, pointing to a strong, long-standing revenue stream that’s already accessible for its AI products.
Strength in the Cloud
For investors who prefer stocks that span different cutting-edge technologies, Microsoft’s strong AI outlook is supported by the strides being made in cloud computing.
“With Microsoft forecasting cloud computing revenue growth of between 34% and 35% on a constant currency basis for the fiscal fourth quarter, amounting to between $28.75 billion and $29.05 billion, it’s clear that the stock is about far more than the AI boom,” notes Steve Frauzel, Head of Market Insights at global brokerage brand Just2Trade.
“This helps to support the stock’s price-to-earnings (P/E) ratio of 39.40, facilitating growth across different emerging technologies in a way that still positions MSFT as a market leader in multiple fields. With this in mind, Microsoft’s fair value price would be closer to $600 moving forward.”
There’s plenty of evidence that Microsoft has found a means of allowing its artificial intelligence investments to complement its booming cloud computing outlook.
Not only did Microsoft confirm that revenue at its Azure cloud division climbed 33% in the fiscal third quarter to March 31, comfortably beating estimates of 29.7%, but it was also suggested that artificial intelligence contributed 16 percentage points to the growth, up from 13 points in the quarter prior.
This suggests that Microsoft’s $100 billion bet on AI in 2025 can see its cloud computing capabilities expand further, helping to keep the company anchored with cutting-edge innovations spanning different sectors.
Further evidence of artificial intelligence and its role in business growth throughout different industries can be found in the firm’s commercial bookings growth, which surpassed $100 billion in the recent quarter, increasing 37% and 30% in constant currency on the year prior.
This growth was driven in no small part by a new Azure contract with OpenAI, fueling speculation on the lucrative partnership’s impact on sales growth.
Could Microsoft Become Bigger than Nvidia?
While both Microsoft and Nvidia are stocks that are closely linked to the ongoing artificial intelligence boom, Nvidia is more directly linked to supporting the burgeoning technology’s infrastructure on a global scale, while Microsoft has sought to expand strategically into the industry while maintaining a multitude of revenue streams throughout the tech landscape.
With this in mind, Microsoft represents a blue-chip stock that’s well spread throughout different emerging technologies, helping the stock to become a winner across different fields. Although the more speculative nature of Nvidia may help the stock rally further in the short term, MSFT remains a strong option for investors seeking a solid long-term hold.
As for which company could become the biggest AI stock on Wall Street, Nvidia may have the upper hand, but if Microsoft can continue to defy expectations at every quarter, there may well be a race on between the tech giants to see who reaches $5 trillion first.
