Key Takeaways
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Nvidia and Palantir have a combined valuation of $4.8 trillion. Both Alphabet and Microsoft might exceed this figure by 2026.
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Alphabet’s push into artificial intelligence (AI) has significantly boosted its sales in advertising and cloud services.
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Microsoft is set to double its data center capacity within the next two years, with recent studies showing Azure as a leading contender for market growth.
As of December 4, Nvidia is valued at $4.4 trillion, while Palantir Technologies stands at $424 billion, making the total market value $4.8 trillion.
It seems to me that Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) could indeed exceed that value by late 2026. So, what does this mean for investors?
- Alphabet’s current market cap is $3.8 trillion. It would require a 29% increase in its stock price to hit a market cap of $4.9 trillion.
- Microsoft’s current value is $3.6 trillion, which means a 36% rise in its stock is needed to reach $4.9 trillion.
Investors should keep a close eye on these AI-focused stocks.
1. Alphabet
Alphabet dominates the ad tech industry. Its ability to attract users to Google Search and YouTube gives it a substantial global presence. The company leverages AI to enhance user engagement and monetization across its platforms. Tools like AI Overview and AI Mode are making Search more appealing, while YouTube creators benefit from AI solutions that help them produce quality content.
Alphabet’s Gemini AI assistant, based on a sophisticated language model, now has over 650 million monthly active users, making it the second most popular AI assistant after ChatGPT. This adds another layer to its advertising offerings. In Q3, Alphabet’s ad revenue was up 13%, marking an acceleration for the second consecutive year.
On the cloud side, Google Cloud ranks as the third-largest public cloud service and has gained two percentage points in market share recently, mainly thanks to its AI capabilities. Research shows that Google is becoming known as a top platform for developing AI applications.
Revenue from AI-driven products surged over 200% in Q3, contributing to a 34% increase in total cloud revenue. Analysts predict that Google Cloud revenue could grow by 44% by 2026.
To sum up, Alphabet’s earnings per share grew 37% recently, giving it a valuation of 31. If the company’s profits increase by 29% next year, hitting a market cap of $4.9 trillion seems possible, especially with the growth in advertising and cloud services.
2. Microsoft
Microsoft stands as a leading software company worldwide. While its office software suite is well-known, it excels in various sectors, including cybersecurity and business intelligence. The firm is capitalizing on AI to boost its offerings.
Microsoft has introduced generative AI co-pilots across many software applications. For example, Microsoft 365 Copilot enhances productivity tools like Word and Excel. CEO Satya Nadella noted that active users of this suite grew from 100 million in June to 150 million by September.
Meanwhile, Microsoft Azure is the second-largest public cloud, gaining market share despite being somewhat constrained in AI infrastructure. The company plans to nearly double its data center footprint over the next couple of years, which should drive cloud revenue growth faster than the overall market projected at 20% annually through 2030.
This positive trend was supported by Morgan Stanley’s Q3 CIO Survey, which ranks Microsoft as the most likely cloud platform to see market growth over the next three years, driven by its software integration and significant AI investments.
As a final note, Microsoft’s adjusted earnings per share rose by 21% in the most recent quarter. This current valuation of 33 times earnings appears reasonable. If its revenue grows by 21% next year, and its P/E ratio expands to 38x, Microsoft’s market cap could also reach $4.9 trillion.
Considerations for Investing $1,000 in Alphabet
Before jumping into Alphabet stock, potential investors should reflect on some key factors. A recent report from a well-known investment team listed several promising stocks, and surprisingly, Alphabet wasn’t among them. These other stocks are considered to have even greater potential for returns over the next few years.
