Which Is the Better Value Stock Right Now: Microsoft or Nvidia?

Perhaps one of the more notable surprises is the fact that Microsoft (NASDAQ: MSFT) and Nvidia (NASDAQ: NVDA) have become perceived by some as value plays. Although each company plays a critical role in AI, Nvidia has struggled to outperform the S&P 500 (SNPINDEX: ^GSPC) this year, while Microsoft stock has pulled back.

Each company will almost certainly continue to play a crucial role in AI and tech at large, so investors should not expect massive stock price declines. Nonetheless, only one of these is likely to stand out as the better value stock in today's market.

Image source: The Motley Fool.

The case for Nvidia

One could argue that Nvidia is the most surprising value stock in existence today. Since hitting a low in the fall of 2022, the stock has increased by more than 1,700% as its AI accelerators have powered the generative AI boom. That took its market cap to $5.1 trillion, the largest among publicly traded stocks.

However, amid that growth, Nvidia trades at a P/E ratio of 32. That is barely above the S&P 500 average of 29, and its recent price action makes it the cheapest it's been since 2019. This is unusual since investors tend to pay a premium for growth. In the first quarter of fiscal 2027 (ended April 26), revenue increased by 85% yearly while net income rose by 211% over the same period.

Knowing that, it is surprising that Nvidia is so cheap. Perhaps growth investors are pulling back, as a $5.1 trillion market cap will make it difficult for Nvidia to be a 10-bagger. Others might feel leery about the massive capital expenditures (capex) spending of the hyperscalers and wonder how long it can last.

Whatever the reason, Nvidia is an inexpensive stock with considerable growth potential. Even if that growth slows significantly, it would likely not undermine the value proposition in Nvidia stock. Moreover, with more than $80 billion in liquidity and the ability to innovate at low cost (it spent just $6.5 billion on capex in the last 12 months), Nvidia is well positioned to outperform the market over time while keeping investor capital safe.

Why investors might consider Microsoft

Despite the aforementioned pullback this year, Microsoft has long been a popular choice for capital preservation. Even though its current $2.9 trillion market cap is well below Nvidia's, Microsift's dominance in PC operating systems, strength in productivity software, and later success as a cloud company have made it one of the market's largest companies.

Moreover, its 23 P/E ratio places it well into value stock territory, and while it cannot match Nvidia's growth, its financial performance is solid. In the third quarter of fiscal 2026 (ended March 31), revenue rose by 17% annually, while net income surged 23% higher during the same period.

However, the company's challenges arguably make the low earnings multiple and falling stock price more understandable. The company's plan to spend $190 billion on capex this year has made some investors uneasy. Furthermore, AI's ability to perform many software functions has made investors leery of SaaS stocks. Also, a close relationship with OpenAI has made some investors skeptical about the strength of Microsoft's AI.

Despite these challenges, Microsoft's earnings multiple could make the stock a safe bet, given its prominent role in the tech industry. Even with heavy capex spending, Microsoft still maintains about $78 billion in liquidity. Additionally, given concerns about its capex spending, it is likely using some of those funds to invest in AI, separate from OpenAI.

Thus, investors should not count it out as an AI company. When considering its valuation and continued growth, Microsoft stock is probably a buy at current levels.

Microsoft or Nvidia?

Of the two choices, Nvidia looks like the better value among the two tech giants right now.

Admittedly, 23 times earnings is an extremely low multiple for Microsoft, and the market may have gone too far in pricing the company's troubles into Microsoft stock.

Nonetheless, the margin of safety Nvidia provides right now is too obvious to ignore. Even if Nvidia's 85% revenue growth slows significantly, it will take considerable growth deceleration to make its 32 P/E ratio seem expensive.

Moreover, Nvidia reached this position by leading and dominating the AI accelerator market. Even with more companies entering this market, they are unlikely to unseat Nvidia anytime soon. That means that even if Nvidia's days as a potential 10-bagger are over, it is likely to outperform both Microsoft and the S&P 500 for the foreseeable future.

Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool has a disclosure policy.