2 growth stocks that will be worth more than Microsoft in 5 years

Microsoft (NASDAQ: MSFT) is a king of reliability known for consistent financial and stock growth. Over the past five years, the company’s stock price has risen 200%, while free cash flow has grown 92%.

Microsoft’s steady growth has given it a market capitalization of more than $3 trillion, allowing it to remain in the top three most valuable companies in the world. In fact, from about February to June of this year, Microsoft temporarily overtook Apple and Nvidia (NASDAQ: NVDA) in market capitalization, occupying first place.

Market fluctuations caused the world’s top five most valuable companies to be reshuffled several times in 2024. Even during August, Nvidia and Microsoft moved into second place almost weekly. Meanwhile, Amazon (NASDAQ: AMZN) seems to be on a run that could overtake the Windows company in the coming years.

Nvidia and Amazon have been on interesting growth paths thanks to skyrocketing earnings. These companies dominate their respective industries and benefit from heavy investments in the lucrative artificial intelligence (AI) market.

While Microsoft is known for consistency, Nvidia and Amazon are expanding at a pace that could allow them to overtake the company. So here are two growth stocks that I predict will be worth more than Microsoft in five years.

1. Nvidia: A meteoric rise that’s unlikely to slow down anytime soon

Nvidia’s business has seen record growth since the start of 2023, with its stock up 779%. Its meteoric rise has seen it steadily climb the ranks of the world’s most valuable companies, as seen in the chart below.

As of this writing, Nvidia’s market cap is above Microsoft’s. Their positions have changed several times this month, suggesting they may change again by the time you read this. However, Nvidia is included in this list because I would argue that it will be overtaken by Microsoft for good and has gained a solid lead over the next five years.

Nvidia massively outperformed Microsoft in 2024, with its stock up 159% compared to Microsoft’s 10% rise. Meanwhile, Nvidia’s quarterly revenue is up 18% year-to-date, while Microsoft’s is up 4%. At this rate, Nvidia could even secure its spot ahead of Microsoft much earlier than five years.

Nvidia’s stellar earnings are primarily due to its dominance in AI. The company is responsible for between 70% and 95% of all AI graphics processing units (GPUs), the chips needed to train AI models. Competitors love it Advanced microdevices and Intel is working to catch up by releasing rival GPUs this year. However, Nvidia’s head start and free cash flow of $39 billion (compared to AMD’s $1 billion and Intel’s negative $13 billion) suggest it won’t have much trouble maintaining its the leader.

The story continues

In AI, Microsoft has a prominent role in cloud computing. However, fellow cloud giants Amazon and Alphabet they are much closer competitors than rivals Nvidia in the GPU market.

Nvidia will report its fiscal 2025 second quarter earnings on August 28. After over a year of beating quarterly earnings, the company is likely to continue recent trends and deliver another quarter of impressive growth. Its stock could rise, increasing its lead over Microsoft.

2. Amazon: Growing earnings and cash to outpace rivals

Amazon and Microsoft are in fierce competition in the cloud industry. In Q2 2024, Amazon Web Services (AWS) cloud market share was 31%, while Microsoft Azure was 25%. However, Amazon has stepped up its investment in the cloud over the past year, which could allow it to maintain its industry lead and eventually push its market cap past Microsoft’s.

Amazon has consistently outperformed Microsoft over the past year. Solid growth in retail and AWS has boosted Amazon’s profits, allowing it to pour billions into its AI efforts.

In March, Bloomberg reported that Amazon plans to spend nearly $150 billion on data centers over the next 15 years to expand the reach of AWS. The company anticipates an explosion in demand for AI applications and other digital services, requiring a more extensive cloud network. The news aligns with several reports in recent months announcing Amazon’s investment in data centers in US locations including Ohio, Indiana and Virginia, as well as international spots such as Singapore, Spain, Saudi Arabia, India and Taiwan.

The expansion will increase Amazon’s cloud and AI capabilities. Meanwhile, a vast network will allow it to boost other areas of its business with generative technology, such as e-commerce, food, digital advertising and more.

Amazon’s market capitalization is currently $1.8 trillion. However, its earnings and stock are expanding at a pace that will likely outpace Microsoft in the coming years.

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Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Dani Cook has no position in any of the listed stocks. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Microsoft and Nvidia. The Motley Fool recommends Intel and recommends the following options: long $395 January 2026 calls on Microsoft, short $35 August 2024 calls on Intel, and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.

Prediction: 2 Growth Stocks That Will Be Worth More Than Microsoft in 5 Years was originally published by The Motley Fool