Tech investors have had a good year so far, but the 22% surge in the Nasdaq Composite index still pales in comparison to the returns that Microsoft (MSFT -0.71%) owners have seen. The software giant is up over 30% through mid-May, in fact.
Wall Street is excited about the prospects for its cloud services division and the potential for a generally strong selling environment ahead for enterprise software. Looking further out, Microsoft might see excellent returns from attractive niches like video games, cybersecurity, and artificial intelligence (AI).
But does the over $2 trillion valuation on the business mean that expectations are too high for investors to see decent returns from here? Let's take a closer look.
More diverse than Apple
Microsoft and Apple (AAPL 1.02%) both have valuations over $2 trillion, yet Microsoft delivers more diversification than the iPhone maker does. Owning this stock means an investor is exposed to several growing tech segments like cybersecurity, subscription gaming services, and cloud enterprise software. That range of growth prospects is possible to achieve without owning Microsoft stock, but would require an investor to buy several other niche players.
The company's latest results show the strength of having this deep portfolio. While parts of the business, like games and PC hardware, shrank in early 2023, Microsoft's global revenue still rose 10%. Apple's sales ticked lower by about 3%, by comparison.
Profits and cash flow
The financial risk for Microsoft investors is also relatively low. The tech stock maintains some of the highest profitability on the market, with operating profit margin now sitting above 40% of sales. Microsoft generated $59 billion of operating cash flow over the past nine months, down only slightly from the prior-year period.
MSFT Operating Margin (TTM) data by YCharts
Its ample cash generation has allowed executives to build up a large savings even as they invest in growth initiatives like AI and the Activision Blizzardacquisition. There's always the risk that big moves like this will destroy shareholder value. But Microsoft's track record has been generally positive on this score.
Paying up
That means the biggest risk for prospective investors is paying too high of a price for this profitable business. That's not a hard case to make given that Microsoft shares are valued at over 11 times annual sales compared to the pandemic high of about 13. Apple can be bought for 7 times revenue, by comparison. There are some rational reasons to believe that this premium valuation can drop over the next few years, including a downturn in IT spending or disappointing returns from AI investments and the Activision purchase.
On the other hand, Microsoft can also grow into that valuation by continuing to expand sales at a double-digit rate while maintaining its market-thumping profitability. And, either way, shareholders are likely to see strong returns, including direct cash returns from stock buyback spending and dividends. While Microsoft isn't going to double its market capitalization anytime soon, investors can still generate market-beating returns by holding the stock as part of a diverse growth-focused portfolio.
Demitri Kalogeropoulos has positions in Activision Blizzard and Apple. The Motley Fool has positions in and recommends Activision Blizzard, Apple, and Microsoft. The Motley Fool has a disclosure policy.
FAQs
The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Is Microsoft a good stock to buy right now? ›
Microsoft has a consensus rating of Strong Buy which is based on 34 buy ratings, 1 hold ratings and 0 sell ratings. The average price target for Microsoft is $504.12. This is based on 35 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
Is Microsoft a buy in 2024? ›
Microsoft (MSFT) stock shouldn't be overly affected by the recent global IT outage. The company's upcoming Q2 earnings are expected to be very strong. Microsoft remains a global leader in the AI race.
Will MSFT reach $1000? ›
While price targets vary from $430 to $600, given the prevailing macroeconomic conditions and specific business risks such as competition and segment slowdowns, anticipating a $1,000 stock price for MSFT may be overly optimistic, particularly in the near term.
Is it safe to invest in Microsoft stock? ›
Microsoft stock has shown leadership — and enriched investors by rising to new highs — in multiple bull markets since then. And in 2024, MSFT stock has justified being part of the Magnificent Seven contingent of megacap stocks that have sharply outperformed one of the most popular benchmarks in investing, the S&P 500.
Is Microsoft a good place to invest in? ›
With its 3-star rating, we believe Microsoft's stock is fairly valued compared with our long-term fair value estimate of $435 per share, which implies a fiscal 2024 enterprise value/sales multiple of 12 times and an adjusted price/earnings multiple of 37 times.
What are the 10 best stocks to buy right now? ›
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| Company (ticker) | Analysts' consensus recommendation score | Analysts' consensus recommendation |
|---|
| ServiceNow (NOW) | 1.49 | Strong Buy |
| Assurant (AIZ) | 1.50 | Strong Buy |
| Howmet Aerospace (HWM) | 1.50 | Strong Buy |
| Insulet (PODD) | 1.50 | Strong Buy |
21 more rowsStock Price Forecast
The 34 analysts with 12-month price forecasts for Microsoft stock have an average target of 490, with a low estimate of 375 and a high estimate of 600. The average target predicts an increase of 10.62% from the current stock price of 442.94.
Is it too late to buy Microsoft stock? ›
Microsoft has long been known for consistent growth and innovation. So, despite considerable gains in recent years, it's not too late to profit from the company's long-term future.
What is the long term Prediction for Microsoft? ›
Price Forecast and Prediction for 2026: We estimate the price to be $633.00, with small revenue gains but margins expanding and an EPS of $18.10. We expect to see Microsoft's P/E ratio to steep down slowly each year through 2030. The stock price estimate would represent a 43.11% gain over today's share price of 442.31.
In 2030, the Microsoft stock will reach $ 1,764.42 if it maintains its current 10-year average growth rate. If this Microsoft stock prediction for 2030 materializes, MSFT stock will grow 298.34% from its current price.
What is the future of Microsoft? ›
Microsoft's growth probably won't cool off anytime soon. From fiscal 2023 to fiscal 2026, analysts expect its revenue and EPS to grow at CAGRs of 14% and 16%, respectively, as it continues to expand its cloud, AI, and gaming ecosystems.
How much would $1000 invested in Microsoft in 1986 be worth today? ›
Microsoft's return is even more impressive than Apple's, as it turned $1,000 invested in its 1986 IPO to $4.1 million now. However, Microsoft's stock ride was rather bumpy, as its stock turned $1,000 into nearly $600,0000 by the turn of the century.
Will Microsoft stock reach $500? ›
The stock reaching a $500 per share price implies about a 50% upside from current levels. This appears unobtainable considering analysts' consensus for Microsoft stock price is currently at $390 (indicating a 16% upside from current levels).
What if you invested $1,000 in Microsoft 10 years ago? ›
Had you invested $1,000 in Microsoft 10 years ago, you would have turned a hefty profit by today. According to computations by CNBC, that modest amount would already have been worth $11,400 as of Nov. 9, 2023.
What stocks are Motley Fool recommending? ›
The Motley Fool has positions in and recommends Lululemon Athletica, Nike, Starbucks, and Walt Disney. The Motley Fool recommends Marriott International and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
Does Motley Fool recommend Amazon? ›
The Motley Fool has positions in and recommends Amazon, Datadog, Netflix, and Walt Disney. The Motley Fool has a disclosure policy.
Can Motley Fool be trusted? ›
Since 1993, The Motley Fool has been a trusted source of investment and financial advice to millions of members. Read their reviews showcasing our commitment to making the world smarter, happier, and richer. We are dedicated to customer feedback in order to provide the best services possible.
Where does Microsoft rank in the Fortune 500? ›
Fortune 500 Full List (2024)
| Rank | Company | Industry |
|---|
| 12 | JPMorgan Chase | Commercial Banks |
| 13 | Microsoft | Computer Software |
| 14 | Cardinal Health | Wholesalers: Health Care |
| 15 | Chevron | Petroleum Refining |
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