Where Will Microsoft Be in 5 Years?

Microsoft (NASDAQ:MSFT) is among the best tech stocks of all time. This year, the stock has spiked by over 35 percent thanks to Microsoft’s growing dominance over commercial AI software and cloud computing.

Unlike many of the high-momentum AI stocks in the market that could be overhyped, however, Microsoft appears to be in a position to deliver reliable earnings growth over the next several years. So, where will Microsoft stock be in 5 years?

Will Microsoft Stock Grow In The Future?

Despite already having a market cap in excess of $2.4 trillion, Microsoft appears to still be growing quite well. In the most recent quarter, the company’s revenue grew 8 percent year-over-year to reach $56.2 billion. Even more encouraging for investors was an 18 percent increase in operating income to $24.3 billion. 

Going forward, Microsoft’s two biggest growth catalysts will likely be cloud computing and the commercial deployment of artificial intelligence technology.

Cloud revenue increased 21 percent year-over-year in the most recent quarter, more than 2.5 times the rate of overall revenue increase.

In fact, that cloud segment is growing quickly enough to make up for decreases in revenue from device sales, which dropped 20 percent. 

In the area of AI, Microsoft is looking forward to several years of gradual, sustained growth as its Azure AI and other artificial intelligence products begin to make meaningful contributions to revenue. Management expects growth from AI to begin showing up seriously in the second half of 2024, 

On the 3-5 year time horizon, analysts expect Microsoft’s earnings to grow at a compounded rate of 12.8 percent. This high but sustainable level of growth could provide Microsoft shareholders with many years of dependable returns. This is especially true if Microsoft uses the next few years to cement its position within the cloud computing and AI business segments.

Turning to Microsoft’s valuation, it also appears that Microsoft is fairly priced for a company in its position. At about 30 times earnings and 28 times cash flow, Microsoft’s price is far from outrageous.

While the pricing multiple of 11.5 times sales is somewhat concerning, Microsoft’s 34 percent net margin justifies a higher-than-average price-to-sales ratio.

What Is the Future Projection for Microsoft Stock?

The median 12-month target price for Microsoft is currently $400. This would result in a 22.1 percent increase from the most recent price of $327.73.

Of the 51 analysts covering the stock, 39 rate it as a Buy.

How Much Will Microsoft Cost in 2025?

Assuming Microsoft hits $400 within 12 months as projected, it seems likely that the stock would trade at $425 to $450 in 2025.

The revenue increases that are expected late in 2024 are already largely priced in, meaning that Microsoft will likely not see the extreme price increases it has experienced this year in 2024 or 2025.

Will Microsoft Reach $500?

While there are never any guarantees in the stock market, it seems highly likely that Microsoft could reach $500 at some time in the next several years.

With steady growth and a dominant position in key emerging technology fields, the probability is quite high that Microsoft’s share prices will continue to rise steadily for several more years.

The $500 mark would represent a gain of only about 53 percent over the current price.

Where Will Microsoft Stock Be in 5 Years?

Assuming Microsoft achieves the 12.8 percent earnings growth expected by analysts over the next five years, the stock’s EPS would reach roughly $17.70. If the P/E ratio remains at roughly 30 times, the stock would trade at around $530 within five years.

This seems a probable outcome, as the current P/E ratio is far from outrageous for a steadily growing company that enjoys a robust moat.

In reality, this could be a conservative estimate. Analysts already predict that the stock could run as high as $400 this year. If this occurs, it’s entirely possible that the market will push Microsoft into the range mentioned above in less than five years.

What Will Microsoft Stock Be Worth in 10 Years?

A decade down the line, it’s difficult to accurately predict where Microsoft stock will be. What does seem certain, however, is that its key growth drivers will continue to perform well over the next decade.

Through 2030, the cloud computing and AI markets are expected to grow at compounded rates of 14.1 percent and 37.3 percent, respectively. Continued growth in these two areas will likely allow Microsoft to continue raising its earnings steadily.

Looking so far down the road, it’s important to consider the effects that ongoing share buybacks may have on the stock. Management is currently buying back several billion dollars in Microsoft shares each quarter, slowly increasing the ownership stakes of the remaining shares.

Since 2014, the number of outstanding Microsoft shares has dropped from 8.24 billion to 7.47 billion. Assuming this relatively consistent trend continues, Microsoft’s future share prices will likely be bolstered by both rising earnings and continued repurchasing activity.

On the 10-year horizon, it’s also worth noting that Microsoft could transform from a growth investment into an income investment. As the company matures, management may choose to return more cash to shareholders in the form of dividends.

Microsoft currently pays $2.72 per share annually, yielding 0.83 percent. This modest dividend has, however, been increasing annually for 20 consecutive years. If this trend continues, Microsoft could become a very solid income-producing investment.

Is Microsoft a Good Stock to Buy and Hold?

Looking at both short-term and long-term trends, Microsoft appears to be an excellent stock to buy and hold for the next several years.

While the stock does trade at a somewhat premium valuation, the growth potential of the company appears to justify its pricing.

For investors willing to buy and hold for the long run, Microsoft appears to be an excellent option that could generate both substantial returns and eventual income.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.