Is Jim Cramer correct in his claim that Nvidia could one day be more valuable than Microsoft?

Earlier this year, microsoft overtook apologize As the world’s most valuable company. With a market value of more than $3 trillion, Microsoft is in a unique position right now.

Semiconductor and data center superstar nvidia (NVDA -0.09%) It is the third most valuable company in the world. As of 2024, the market capitalization has soared 127%. To put this into absolute dollar terms, consider that companies have added more than $1.5 trillion to their market capitalization this year.

Recently, journalist and stock analyst Jim Cramer floated the idea that Nvidia could overtake Microsoft to become the world’s largest company. Is he right? Let’s explore.

The Road to the Trillion Dollar Club

Microsoft was founded almost 50 years ago. The company revolutionized personal computing with its Windows operating system and has grown over the years to become one of the most diverse businesses in the technology space.

In addition to Windows, Microsoft owns gaming platforms Activision Blizzard and Xbox, social media website LinkedIn, cloud computing infrastructure Azure, and software development tool GitHub. It recently invested billions of dollars in OpenAI, a startup developing ChatGPT.

It helped Microsoft gain new growth drivers as it evolved from a primary PC business into a company that operates across a variety of industries. This dynamic is directly tied to Microsoft’s rising valuation.

Nvidia is a much younger company than Microsoft. Founded in 1993, the company started out as a computer graphics company focused on games. Today, I’m betting you’re most familiar with Nvidia because of its in-demand graphics processing units (GPUs) or the company’s charismatic CEO, Jensen Huang.

But we are more than just a GPU developer and data center service provider. Nvidia is involved in robotics, enterprise software, autonomous driving, and more. The company is also investing in unicorn startups Figure AI and Databricks.

Considering its diverse businesses and opportunities, Nvidia has taken a path to the trillion-dollar club that is strikingly similar to Microsoft’s, despite the company’s seemingly massive recent growth.

Image source: Getty Images

Will NVIDIA become the world’s largest company?

The chart below shows the long-term trend in market capitalization between Microsoft and Nvidia. What you need to pay attention to here is the growth rate.

Microsoft maintains a comfortable lead of about $300 billion, but Nvidia’s line slope is much steeper than Microsoft’s. Looking at it another way, if Nvidia maintains its current growth rate, it will easily surpass Microsoft as the world’s most valuable company.

NVDA market cap data from YCharts

That’s why I warn investors not to chase any momentum. Both Microsoft and Nvidia have built diverse businesses. Additionally, each company is using artificial intelligence (AI) to converge various platforms and seek new paths to growth.

Nonetheless, there are some key differences. Microsoft has a rich history of acquisitions that have yielded significant results. However, the company has continued to strengthen its products and services through a new investment called ChatGPT.

The point here is that Microsoft continues to generate growth through assets it acquired several years ago and through new investments that have not yet fully monetized the company. For this reason, I see Microsoft as a generational opportunity, despite its seemingly mature, blue-chip identity.

Nvidia, on the other hand, has done a good job of distributing excess profits and expanding beyond its chips and data center operations. But the company’s investments in areas like humanoid robotics and data analytics software have been more likely to grab the headlines for some time now.

Of course, a deal like this could propel Nvidia into a new wave of growth. But for now, it’s too early to tell.

What should investors do?

I don’t recommend investing in Nvidia in the hopes that it will one day become more valuable than Microsoft. Even if that happens, Microsoft can always reclaim its throne. As I wrote recently, investing just $1,000 in Nvidia’s IPO is now worth more than $1 million.

Nvidia has been able to accelerate growth by expanding beyond gaming and becoming a leader in semiconductors, computing, and AI, resulting in strong shareholder returns. The important theme here is that investors should think about the long-term potential when evaluating opportunities.

It is doubtful whether it will become the biggest business in the world. Considering the fact that the company is breaking ground in new areas of the AI ​​landscape and is currently considered a leader in the chip market, I am optimistic that the company’s growth prospects are bright. For these reasons, Nvidia looks like an attractive investment to hold for the long term.