Microsoft (NASDAQ: MSFT) stock has turned many shareholders into millionaires over the past few many years. In spite of everything, the software giant’s climb toward $3 trillion of market capitalization has been incredible, punctuated recently by its overtaking Apple because the world’s most dear business. It pays well to be along for that type of ride, even in case you were relatively late to the expansion party.
The software giant’s business looks much different today than it did 25 years ago, and tech trends will certainly change many more times over the subsequent several many years. Yet, the massive query for investors going forward is whether or not the stock can still produce market-beating returns, given Microsoft’s lofty valuation perch today. Let us take a look at the aspects that would make this stock a positive force in the long term in your retirement portfolio.
Size and variety
While investors cannot know which tech trends will dominate the industry in several years, they will feel reasonably confident that Microsoft will proceed to be a number one player as those trends emerge. It already has excellent exposure to many growth niches, including cloud enterprise services, video games, cybersecurity, and artificial intelligence. That diversity also boosts its value to large customers, who’re increasingly searching for a comprehensive software solutions provider.
Sure, you may see much faster growth by owning a specialist, like cybersecurity expert Palo Alto Networks, that’s at an earlier chapter in its growth story. This maker of powerful firewalls and cloud security products is targeting a few years of above-average sales gains ahead as more businesses look to guard their digital assets and workflows. Yet, Microsoft already has a priceless relationship with many of the world’s largest enterprises. It is not a stretch to consider the software titan can construct on that formidable market share position in the approaching years and many years.
Resources matter
Microsoft’s financial strength is one other huge consider its favor. The corporate is sitting on over $140 billion of money as of late September. It generated $30 billion of operating money flow in only the last quarter, too, as operating profit jumped a healthy 26% higher year-over-year.
Quite a lot of value is conferred by those ample financial resources. All that money means Microsoft can more easily survive a market downturn than its smaller peers. It could possibly invest aggressively in tech innovations, because it has been doing with AI these days. And if it misses any emerging opportunity, it could possibly use money to fund acquisitions or partnerships that keep it within the leadership position in the subsequent computing era. Most tech corporations haven’t got anything approaching that level of flexibility.
Price and value
As you may expect, Microsoft’s stock is priced at a premium that reflects many of the key benefits detailed above. An investor must pay over 13 times annual sales for its shares, which is not removed from the pandemic high that investors saw back in early 2022. As compared, you would own Amazon for a relative steal of about 3 times revenue, although the e-commerce giant’s profit margins aren’t nearly as lucrative as Microsoft’s.
Microsoft’s high valuation and market capitalization mean investors’ returns from here will necessarily be constrained. Yet, the stock could still play a positive role in a retirement portfolio that goals to crack the $1 million mark. Microsoft investors can expect the corporate to steer the tech shifts ahead while capitalizing on its entrenched position in the large global software industry. In other words, the tech giant has a very good shot at producing more millionaire shareholders in the approaching many years.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Demitri Kalogeropoulos has positions in Amazon and Apple. The Motley Idiot has positions in and recommends Amazon, Apple, Microsoft, and Palo Alto Networks. The Motley Idiot has a disclosure policy.
Could Microsoft Stock Help You Retire a Millionaire? was originally published by The Motley Idiot