Tech Giants Nvidia and Microsoft Face Fresh Challenges as Investment Firms Think Twice About Holding

They’re two of the world’s largest stocks by market capitalization, but could the might of Nvidia (NASDAQ:NVDA) and Microsoft (NASDAQ:MSFT) come under new strain in 2025 as fresh challenges emerge?

The news that London-based investment firm Findlay Park, which counts $10.7 billion in assets under management, has been cutting its holdings of both Nvidia and Microsoft has raised eyebrows throughout US markets.

Findlay Park’s pedigree for success can be found in the performance of its sole fund, the American Fund, which has outperformed 86% of its peers, making its decision to lower exposure to two of the world’s largest stocks particularly curious.

The fund’s CEO Simon Pryke highlighted tepid earnings and growth expectations, as well as misaligned valuations with this slower rate of growth as a fundamental reason for trimming holdings in the two tech giants.

But could we see the likes of Nvidia and Microsoft struggle to win over institutional investors in the new year? The future growth of the stocks will depend on managing hype and sustainable growth.

Could Nvidia Struggle as Growth Slows?

Being one of the ‘Magnificent Seven’ stocks, there’s little doubt about Nvidia’s pedigree, the stock has rallied amid the ongoing generative AI boom to become one of the world’s most valuable stocks. Nvidia’s Q3 2024 earnings reports were impressive, posting 94% year-over-year growth and sales of $35 billion.

Nvidia’s data center business also posted growth of 112% thanks to increasing AI demand, while net profit doubled to $20 billion.

However, there are concerns over Nvidia’s long-term growth prospects. The company’s forecasted revenue of $37.5 billion for the fourth quarter, slightly above analyst estimates of $37.09 billion, is healthy but far behind its previous quarterly growth rates.

Should Nvidia’s fourth-quarter forecast be met, it indicates a year-to-year growth of around 70% from 2023. This would be impressive for most firms, but for a company that recorded 265% annual growth in the year-ago period? Not so much.

Despite this, it’s worth looking at Nvidia’s advantageous position at the forefront of an AI market that’s ripe for growth. With Nvidia holding around 90% of the GPU market and 98% of the GPU training market, buying into NVDA is tantamount to betting on the growth of generative AI, which is a market forecasted to be worth $1.3 trillion by 2032.

There’s also more hope that Nvidia can sustain its growth rates through innovations like the CUDA platform, which is a software framework designed to accelerate the capabilities of GPU software.

“Forecasts suggest that Nvidia could continue its upward trajectory, potentially reaching a valuation of $10 trillion by 2030,” suggests Maxim Manturov, head of investment research at Freedom24.

“This ambitious target reflects expectations of sustained growth in both the hardware and software segments, with CUDA playing a key role in expanding market reach and strengthening its presence. competitive advantage.”

Can Microsoft Out-Innovate its Falling Market Share?

Microsoft’s slipping grip on the global desktop market will be a cause for concern as Windows 11’s market share fell from 35.6% in October 2024 to 34.9% by December. Although Windows 10 made subtle gains, MSFT’s struggle to win new consumers for its more recent release could point to trouble ahead.

In addition to these problems, the company has been hit with a class action lawsuit in the UK over the price of its software. If successful, Microsoft could be liable to pay a fine exceeding £1 billion ($1.27bn).

MSFT has been making steady progress on Wall Street, posting growth of nearly 15% for the calendar year up to the beginning of December, but investors will want to see more ground covered in selling newer software to consumers.

However, solace can be taken from Microsoft’s wins elsewhere. Although Windows 11 has struggled for dominance in the global desktop market, the system has achieved a new high market share of 53% throughout Steam’s gaming market. This highlights the firm’s long-term focus on building into the lucrative video game landscape, which is forecasted to grow at a CAGR of 13.1% towards 2030.

Microsoft can also secure more Wall Street growth through its various environmental initiatives. Having committed $1 billion to its Climate Innovation Fund, the tech leader’s investments in climate change-focused technologies are likely to gain new resonance in the coming years as global warming continues to climb international priority lists.

Already, Microsoft has provided 850 grants to organizations in 110 countries as part of its AI for Earth scheme, and these initiatives can be crucial to the stock’s sustainability credentials.

What’s Next for NVDA and MSFT?

The challenges facing Nvidia and Microsoft revolve around their ability to build on their impressive performance in recent years.

The scale of the AI boom is such that retaining their seismic market share across key industries is essential, and this will require a commitment to R&D, and outpacing a growing network of competitors.

However, with strong innovation pipelines and commitments to sustainability, both stocks appear set to maintain strong growth rates into the future. Determining the scale of this growth is likely to be the $1 trillion question for key institutional investors.