Three Companies Poised to Join the $4 Trillion Valuation Club

The $4 trillion club remains unformed, but three companies stand out as potential founding members:

• Microsoft (NASDAQ: MSFT): Valued at $3.2 trillion.
• Apple: Valued at $3 trillion.
• Nvidia: Valued at $2.8 trillion.

Among these contenders, Microsoft is closest to the milestone. Its growth, largely fueled by its Azure cloud platform, is outpacing Apple’s. Although Nvidia’s valuation is lower, its rapid growth in AI chip sales could help it reach the $4 trillion mark sooner than both Microsoft and Apple.

Surging Demand for Copilot

Since 2019, Microsoft has invested approximately $14 billion in OpenAI, the AI start-up behind ChatGPT. This investment has led to the creation of Copilot, a virtual assistant now integrated into Microsoft products like Windows, Bing, and Edge, available at no extra cost for users. Subscribers of the Microsoft 365 productivity suite can access this feature for an additional monthly fee.

Organizations worldwide utilize over 400 million Microsoft 365 licenses, making Copilot a potential significant source of recurring revenue. In the third quarter of fiscal 2025, Microsoft noted that Copilot was used by hundreds of thousands of organizations, marking a threefold increase from the previous year. CEO Satya Nadella reported that deal sizes continue to grow as more customers opt for additional licenses.

The launch of new Copilot features during the third quarter aimed to boost adoption rates, introducing tools such as Researcher and Analyst. Researcher assists employees in developing strategies and reports by scanning internal and external data, while Analyst transforms raw spreadsheet data into demand forecasts. These innovations could significantly elevate productivity levels for organizations.

Azure Revenue Growth Driven by AI

Azure, Microsoft’s cloud platform, provides numerous solutions to help businesses modernize. It is increasingly recognized as a key resource for companies seeking the computing power necessary to develop AI applications. Microsoft tracks its AI cloud revenue under the Azure AI segment, which is evolving into a prominent growth driver.

During the third quarter of fiscal 2025, Azure revenue increased by 33% year over year, with robust contributions from Azure AI, which accounted for 16 percentage points of that growth.

Microsoft is investing heavily in infrastructure and acquiring AI chips from leading suppliers like Nvidia to meet this soaring demand. In the third quarter alone, the company opened new data centers in ten countries. Additionally, Microsoft has a staggering order backlog worth $315 billion from customers seeking increased computing capacity. This indicates substantial growth potential for Azure AI revenue, although significant capital expenditures will be required to capture it. Microsoft plans to allocate $21.4 billion for capital expenditures in the third quarter, primarily focused on data center development. Overall, it is on track to exceed $80 billion in expenditures for the fiscal year, with expectations for further increases in fiscal 2026.

Pathway to the $4 Trillion Club

As of now, Microsoft’s stock trades at a price-to-earnings (P/E) ratio of 33.6, closely aligning with its 10-year average. This valuation positions it between Apple, which stands at a P/E of 31.9, and Nvidia at 38.9, suggesting that Microsoft is fairly priced.

If Microsoft maintains its current P/E ratio, the company needs to grow its earnings per share (EPS) by 23.5% to achieve a $4 trillion market cap. Over the past decade, Microsoft’s EPS has grown at an average rate of 16.2% annually, positioning it to reach this threshold in approximately 18 months.

However, Microsoft is currently experiencing slower-than-expected EPS growth, partly due to its significant data center investments impacting profitability. According to Wall Street analysts, the consensus estimates suggest a 12.8% EPS growth for fiscal 2026. If this growth continues into fiscal 2027, Microsoft could reach a $4 trillion valuation in about two years, despite its high capital spending.

While it remains uncertain which company will achieve the milestone first, Microsoft appears well-positioned to join the $4 trillion club in the near future. Its recurring revenue from products like Microsoft 365 and Copilot, in conjunction with a substantial $315 billion backlog for Azure AI, enhances the likelihood of sustained success.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia.

The views expressed in this article are those of the author and do not necessarily reflect those of Nasdaq, Inc.