Microsoft Surpasses Apple as World’s Largest Company Following Strong Q3 Earnings
Microsoft(NASDAQ: MSFT) reported its fiscal year 2025 third-quarter results for the period ending March 31, revealing performance that helped it surpass Apple(NASDAQ: AAPL) as the world’s largest company by market capitalization.
This significant achievement indicates an impressive quarter for Microsoft. However, does this performance position Microsoft as the best stock within the “Magnificent Seven” cohort of leading tech firms? The group includes:
- Microsoft
- Apple
- Nvidia(NASDAQ: NVDA)
- Amazon(NASDAQ: AMZN)
- Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL)
- Meta Platforms(NASDAQ: META)
- Tesla(NASDAQ: TSLA)
Though Microsoft currently leads in market cap, the question remains if it is the optimal choice for investors within the Magnificent Seven. Let’s explore the details.
Image source: Getty Images.
Cloud Services Drive Microsoft’s Growth
Microsoft transcends its reputation as a software company known for Word and Excel. The business spans LinkedIn, cloud computing, and gaming, with successful ventures like its Xbox platform and the Activision Blizzard acquisition. In Q3, the intelligent cloud segment stood out, delivering 21% revenue growth. This area has consistently been a key growth driver, predominantly due to Azure, Microsoft’s cloud computing platform.
Azure was Microsoft’s fastest-growing segment, posting an impressive 33% growth rate. This division is expected to maintain its leadership, backed by significant factors: the increasing demand for artificial intelligence (AI) capabilities and the ongoing transition to cloud services. The full migration of workloads to the cloud will continue to unfold over the next decade.
Excluding cloud contributions, Microsoft’s performance appears less impressive—productivity and business processes grew by only 10% year over year, while personal computing saw a 6% increase. Nevertheless, robust cloud results led to an overall revenue rise of 13% year over year, with net income climbing a remarkable 18% year over year.
In summary, Microsoft’s future aligns closely with the growth trajectory of the cloud sector. While this prospect is not mere chance—CEO Satya Nadella has strategically positioned the company for success—it’s promising news for shareholders.
Microsoft’s Valuation Compared to Peers
The Magnificent Seven includes multiple heavy-hitters in the market. Although Microsoft leads, it is not necessarily the best buy among tech stocks. For instance, both Apple and Tesla face valuation challenges, positioning them lower in comparison.
Currently, Microsoft carries the highest forward price-to-earnings (P/E) ratio among its peers.
MSFT P/E Ratio (Forward) data by YCharts.
Although this does not completely negate the value of owning Microsoft stock, it indicates that it may not be the best option within the Magnificent Seven. Nonetheless, Microsoft’s high valuation is a reflection of its anticipated strong growth relative to peers.
MSFT Revenue Growth Estimate for Current Fiscal Year data by YCharts.
Notably, Nvidia’s anticipated growth skews the comparisons, and Alphabet also exceeds Microsoft’s expected earnings-per-share growth, which is significant since Alphabet is among the lowest-valued stocks in this group.
In conclusion, while Microsoft is a cautious buy, it ranks in the middle of the Magnificent Seven, succeeded by strong contenders like Alphabet and Nvidia. This position still reflects positively, as being part of this elite group is a commendable achievement.
Is Investing $1,000 in Microsoft a Good Idea Right Now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet, Amazon, Meta Platforms, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
