Nvidia and Microsoft have both fallen sharply yet trade at valuations below or near the S&P 500 average despite strong growth—Microsoft's AI business grew 123% year-over-year and Azure 40%, while Wall Street projects Nvidia 82% earnings growth next fiscal year. Both stocks are positioned to benefit as AI hyperscalers ramp up spending, which is expected to exceed $1 trillion（約160兆円） next year, though the pricing opportunity may not persist indefinitely.
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Nvidia trades at 21.9× forward earnings and 15.4× next year's earnings, while Microsoft trades at 20× forward earnings—both recently down sharply from recent highs yet posting strong revenue and earnings growth. Microsoft's AI business generates $37 billion（約5.9兆円） in annual recurring revenue, growing at 123% year-over-year, and Azure is growing at 40%. Wall Street projects 82% earnings growth for Nvidia in FY 2027 and 41% growth in FY 2028.
Why it matters
Both stocks trade below or near the S&P 500's 21.7× forward earnings multiple despite outpacing the broader market in growth. Microsoft has historically traded at 30× forward earnings, and analysts suggest it could reach around 25× if it reports a solid quarter. For Nvidia, next year's AI capital spending is expected to exceed $1 trillion（約160兆円）, and Wall Street has historically underprojected Nvidia's growth rates, potentially creating upside if that pattern repeats.
What to watch
Microsoft's next quarterly earnings report in a few weeks could reignite buying interest. Nvidia's stock historically rallies in the second half of the year as market expectations for next-year capital expenditures come into focus; the period through end of 2026 is flagged as a potential window for significant gains.
Both Nvidia and Microsoft have experienced recent stock declines yet remain positioned for continued growth driven by AI infrastructure buildout. Microsoft's strength is evident in its cloud platform Azure (growing at 40%) and its Copilot AI assistant business ($37 billion（約5.9兆円） in annual recurring revenue with 123% year-over-year growth), supporting revenue growth of 18% and earnings-per-share growth of 23% in its latest quarter. Nvidia, meanwhile, benefits from the multi-year capital expenditure cycle that hyperscalers are undertaking globally to build AI computing capacity.
The valuation disconnect between recent stock performance and forward earnings growth creates the investment case presented here. Microsoft trades at 20× forward earnings after spending much of the past three years at 30×, while Nvidia trades at 21.9× current-year forward earnings but only 15.4× next year's earnings—both well-positioned relative to the S&P 500's 21.7× multiple. Wall Street's historical pattern of underprojecting Nvidia's growth rates suggests forecasts may again be conservative, although the author acknowledges uncertainty about whether Microsoft can recover to its historical 30× multiple (25× being a more feasible near-term target based on peer trading levels). Nvidia's seasonal pattern of stock gains in the second half of the year, driven by forward capital-expenditure expectations, is cited as a near-term catalyst.
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