This week, Microsoft made headlines across the globe for becoming the second-ever company to cross a $3 trillion valuation.
This monumental milestone can be attributed to many things: the pandemic, the rise of artificial intelligence (AI), and the infamous ChatGPT.
However, experts have speculated that topping $3 trillion could be just the tip of the iceberg for the software giant. Being one of the highest-valued companies in the world, Microsoft could be the first to reach the unthinkable – a whopping $10 trillion valuation. Here’s why.
Read More: Microsoft Surpasses Q2 Earnings Expectations, Riding High on AI and Cloud Success
The Pandemic
It’s no secret that business was booming for tech companies during the 2020 pandemic. With the majority of countries forced into lengthy lockdowns, people’s entire lives revolved around being online.
From remote working and homeschooling to keeping in touch with loved ones, the internet was society’s lifeline during those uncertain times.
As demand for tech rocketed, companies such as Microsoft experienced huge increases in sales. In January 2021, the New York Times reported that Microsoft’s sales in their latest quarter had reached $43.1 billion, a 17% increase from the year before.
The article also stated that Microsoft’s profits had risen 33% to $15.5 billion. Based on these figures, it’s clear that Microsoft was climbing its way to the top in the wake of the pandemic.
Microsoft’s Rapid Growth
Naturally, soaring profits led Microsoft’s market cap to increase. However, the speed at which its growth accelerated is particularly noteworthy.
Prior to the pandemic, outstanding MSFT stock was valued at a total of $1.3 trillion. Today, it has a total value of $3.004 trillion.
Microsoft shares have reached an all-time high of $404.72, rallying in morning trading by up to 1.5%, according to Forbes.
Microsoft is showing no signs of slowing down, and with a few more good years under its belt, that coveted $10 trillion crown could be heading its way.
Growth of AI
AI has been around since the early 1950s when a pioneering computer program successfully completed a game of draughts at a “reasonable speed.” In recent years, millions of companies worldwide have embraced the cost-effective and convenient ‘chatbots’ to streamline their customer service.
However, 2022 saw AI experience huge growth in use when OpenAI and its revolutionary chatbot, ChatGPT, became household names.
Microsoft has been in a long-term partnership with OpenAI since 2019, and as of November 2023, it had invested $10 billion into OpenAI’s research and development.
Following the launch of ChatGPT, shares of Microsoft rose by over 60%, topping the S&P 500’s rise of approximately 20%, the 40% increase of Nasdaq, and the roughly 30% jump experienced by Apple.
Microsoft is also one of the few major companies to convert increasing interest in AI into improved financial results. The tech corporation reported record revenues throughout its two latest fiscal quarters, along with 20% year-over-year growth in its intelligent cloud division, in which AI is heavily involved.
Also Read: Could IBM be a Turn-Around Stock like Microsoft?
The Competition
Microsoft may be edging closer to a $10 trillion valuation, but it’s got some tough competition to beat. It’s just one of the “magnificent seven” major tech stocks influencing most of the recovery of the stock market from as far back as 2022.
The Office.com creator is joined by Apple, Alphabet, Amazon, Meta, Nvidia, and Tesla. Every one of these firms has experienced growth following the increased demand for AI, although only Apple, Meta, Nvidia, and, of course, Microsoft have surpassed their previous records.
Apple is most likely to reach a valuation of $5 trillion before the remaining six firms, with the expectation being that this will happen around 2028. The iPhone creator was the first to surpass the $3 trillion mark, shortly before Microsoft.
The two tech titans were battling hard for the top spot in recent months, with Microsoft briefly overtaking Apple earlier this year. However, Microsoft’s victory was short-lived, with Apple swooping in and reclaiming the crown.
How quickly the $10 trillion title will be gained is difficult to predict. It’s likely to be decades before any of the seven contenders even get close to the finish line.
However, it’s worth noting that the tech industry is constantly evolving, and new firms are being launched every day. It wouldn’t be out of the realm of possibility for an unknown company to suddenly soar to success, especially if its specialism is AI.
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Faith is an enthusiastic freelancer and regular contributor to numerous finance blogs, creating valuable pieces to educate individuals on finance and fintech options. As a skilled writer, Faith has created content for diverse industries—if it exists, she’s likely written about it!