The artificial intelligence revolution has reshaped the technology sector, creating unprecedented market valuations and fierce competition among tech giants. A significant shift occurred when Microsoft (MSFT) briefly surpassed Nvidia (NVDA) in market capitalization on Dec. 12, marking a pivotal moment in the AI industry's competitive landscape.

Microsoft's strategic integration of AI across its product suite and partnership with OpenAI contrasts with Nvidia's dominance in AI chips and computational infrastructure. Their distinct approaches to capturing value in the AI boom highlight the diverse paths to success in this technological revolution.

With the global artificial intelligence market projected to reach $3.68 trillion by 2034, growing at a compound annual growth rate (CAGR) of 19.1%, the stakes have never been higher. As these tech giants continue to shape the future of AI, investors face a crucial decision: Microsoft's software-centric approach or Nvidia's hardware foundation. Which is the better AI stock to buy now? Let’s find out.

Microsoft Corporation (MSFT)

Microsoft is a global technology leader that has masterfully transformed from a software company into an AI powerhouse. The company's recent launch of Phi-4, a new generative AI model, and its expanding Cloud AI Partner Program demonstrate its commitment to innovation in artificial intelligence. This strategic focus has helped propel Microsoft's market capitalization to $3.25 trillion, recently briefly overtaking Nvidia to become one of the world's most valuable companies.

The company's financial performance reflects this successful transformation. In Q1 2025, Microsoft exceeded expectations with revenue reaching $65.6 billion, marking a 16% year-over-year increase, while earnings per share hit $3.30. Particularly impressive was the Microsoft Cloud division, which saw revenue surge 22% to $38.9 billion, with Azure growth reaching 33%. These strong results have contributed to the stock's robust performance, climbing 19.4% year-to-date.

Looking ahead, analysts project continued growth with an estimated EPS of $3.14 for Q2 2025 and full fiscal year 2025 earnings of $12.93 per share. 

The market's confidence in Microsoft's AI-driven future is reflected in a “Strong Buy” consensus rating and a mean target price of $504.08, suggesting potential upside of 12.7% from current levels. Of the 40 analysts covering the stock, 34 maintain a “Strong Buy” rating, while 3 suggest a “Moderate Buy,” and 3 recommend holding. 

Nvidia Corporation (NVDA)

Nvidia has emerged as the undisputed leader in AI hardware and chip technology. Its market capitalization remains dominant at $3.36 trillion, reflecting its leading position in the AI chip market.

The company's stock performance has been nothing short of extraordinary, with a staggering 165% increase year-to-date. While shares are sligtly off their 52-week high of $152.89, the overall trajectory proves Nvidia's commanding position in the AI revolution. 

This remarkable growth stems from unprecedented demand for its AI chips, particularly evident in its latest quarterly results, where revenue soared 94% year-over-year to $35.1 billion.

Nvidia's data center segment has been particularly exceptional, generating $30.8 billion in revenue, marking a 112% year-over-year increase. This performance dwarfs Microsoft's cloud revenue growth. The company's strategic expansion continues, with recent moves including the addition of 200 staff in Beijing for autonomous driving research, demonstrating its commitment to maintaining technological leadership.

Looking forward, Nvidia's guidance suggests continued momentum, with projected Q4 revenue of $37.5 billion and impressive gross margins of 73.5%. 

The market's enthusiasm for Nvidia's AI dominance is reflected in overwhelmingly positive analyst sentiment, with a “Strong Buy” consensus. Of 43 analysts, 36 maintain “Strong Buy” ratings, with 3 “Moderate Buys” and 4 “Holds.” The mean target price of $173.71 suggests potential upside of 31%, significantly higher than Microsoft's projected upside.  

Conclusion

The battle between Microsoft and Nvidia in the AI space presents two distinct investment paths. While Microsoft provides a balance of stability and innovation, Nvidia offers higher growth potential with greater volatility. Ultimately, the choice depends on individual risk tolerance and investment goals. For balanced tech exposure with steady returns, Microsoft is the safer bet. For those seeking maximum AI market exposure and willing to accept higher risk, Nvidia is the go-to option. Both stocks are strong contenders in the AI race, making them valuable additions to a tech-focused portfolio.