Microsoft’s stock would need to appreciate by 41% from current levels to achieve a $5 trillion market cap.
The company’s AI tools are gaining great traction in the productivity space, while its cloud business is also thriving.
Wedbush’s Dan Ives expects Microsoft to become a $5 trillion company next year, and it wouldn’t be surprising to see the company actually pass that milestone.
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Nvidia(NASDAQ: NVDA ) It became the first company to cross the $5 trillion market cap just a few months ago, driven by the company’s significant revenue and earnings growth due to its dominance in the artificial intelligence (AI) chip market.
However, the chip giant’s share price has since bounced back, though it has maintained tremendous growth despite its massive size. Worries about the AI boom becoming a bubble and the sustainability of the heavy infrastructure spending that has fueled Nvidia’s phenomenal growth over the past three years are beginning to weigh on the stock.
But there is another company – Microsoft(NASDAQ: MSFT ) — It’s making the most of the proliferation of AI. One analyst believes these “Magnificent Seven” companies could reach a market cap of $5 trillion by 2026. Let’s take a closer look at Microsoft’s prospects and why it could hit the $5 trillion market cap milestone in the new year.
Image source: Getty Images.
It cannot be denied that Nvidia’s chips have played an important role in the widespread use of AI technology. However, the computing power provided by its chips is ultimately used to create customer-facing solutions. For example, training OpenAI’s ChatGPT wouldn’t have been possible without Nvidia’s chips, but the chatbot became popular because of what it was doing for users.
From helping users write emails to drafting documents and writing code, ChatGPT’s versatility and productivity are the main reasons for its raging success. Not surprisingly, ChatGPT parent OpenAI points out that it now has more than 1 million paying enterprise customers, while more than 800 million users use ChatGPT each week.
Microsoft made a smart move in 2019 by investing in OpenAI. It still holds a 27% stake in OpenAI, a company reportedly worth $500 billion. However, more than the financial aspect, OpenAI gave Microsoft access to large language models (LLMs) and applications, enabling it to build a broad portfolio of AI-powered tools and use them in its offerings.
From cloud computing to personal computing to productivity tools, Microsoft has infused AI into all its business segments. The good part is that its AI tools are gaining traction among customers. For example, Microsoft management commented on the company’s October earnings conference call that Copilot, its chat-based AI assistant, is now being used by 90% of Fortune 500 companies.
Even better, Microsoft says that “a large majority of our enterprise customers continue to come back to buy more seats.” Coders and cybersecurity experts are also using Microsoft’s Copilot to increase productivity and improve the effectiveness of their tools. So, it wouldn’t be surprising to see Microsoft take a bigger share of the office productivity tools market in the long run, compared to its current share of 30% of the office productivity tools market.
On the other hand, demand for Microsoft’s Azure cloud infrastructure is outpacing supply. This explains why Microsoft intends to double its data center capacity over the next two years to support rapidly growing demand from customers looking to build AI tools on its platform.
It’s worth noting that Microsoft’s commercial balance performance obligation (RPO) at the end of the previous quarter was up 51% from last year to a whopping $392 billion. This metric refers to the total value of contracts yet to be completed. The size of Microsoft’s RPO is larger than the $294 billion in revenue recorded in the last 12 months. Additionally, its RPO grew faster than the 18% revenue jump Microsoft recorded last quarter, indicating it is winning new business at a faster rate than it is fulfilling existing contracts.
As such, don’t be surprised to see Microsoft’s growth pick up in 2026, putting the tech giant on track to achieve a $5 trillion market cap.
Microsoft currently has a market capitalization of $3.6 trillion. So, it needs to appreciate by another 41% from the current level to reach the milestone of $5 trillion. Analysts have estimated that Microsoft’s revenue will increase by 16 percent in the current financial year to reach $327 billion, and it is estimated that it will increase by 15 percent to $376 billion in the next year.
However, Microsoft’s huge RPO and the pace of growth in this metric indicate that it may exceed those expectations. With Microsoft’s revenue expected to grow 20 percent next fiscal year to $392 billion (from this year’s estimated revenue of $327 billion) and trade at 13 times sales then, based on its current price-to-sales ratio, its market cap would be just shy of $5 trillion.
Hence, this AI stock looks poised to deliver healthy gains in the coming year, so investors can consider adding it to their buy list for the new year.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions on and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. Motley Fool has a disclosure policy.
Prediction: This company is poised to hit a $5 trillion market cap in 2026 (hint: it’s not Nvidia) was originally published by The Motley Fool.
