WWith a market capitalization of over $ 2.3 trillion, it may seem Microsoft (NASDAQ: MSFT) is unlikely to beat the market in the years to come, but don’t be so sure. In this fool live Video clip, recorded on October 18, Fool contributors Matt Frankel, Toby Bordelon and Trevor Jennevine explain why Microsoft might still be a smart stock to hold for investors who want to beat the market over time.
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Toby Bordelon: I think I always forget to look at market cap when talking about Microsoft, so let me do that very quickly. I think it’s actually more than two with $ 2.3 trillion right now for Microsoft. If anyone thinks that I will only buy stocks up to 10X in the next five years, you might want to take a step back on this one because 10X is extremely unrealistic, I think, in a short period of time. .
Can he still grow taller, I guess that’s the biggest problem? Yeah, I think it’s possible. I think it continues to work well. I said that sentence, but it’s not your father’s Microsoft. It’s not the Microsoft of the ’80s and early’ 90s when it came to buying Windows and buying Office. You go to the computer store, you get the software out of the box, you bring it home, you install it. This is not what we are talking about now. They assess themselves in the three market segments. One is of course Office basically, it’s a business segment, one is Cloud, Azure mostly, the other is what they call More Personal Computing, that’s where Windows lives with Xbox and with the manufacture of surface material.
Really over the last year, I believe throughout the last quarter definitely, they were at the same stage in terms of revenue generated by each segment, so they’re pretty well diversified. But Azure is clearly growing and the Cloud is clearly growing; this is where their growth segment is currently located. The personal computing segment is down slightly, growing there much slower, as you would expect. Even within their Office segment, they are moving more towards a subscription model. It is both on the business side and on the consumer side. The idea is that you pay an annual Office subscription, which gives you Microsoft Office, it gives you Teams, it gives you another consumer called Microsoft 365, it gives you Outlook Online. It gives you all kinds of things that they’re pushing people to.
Certainly a very different model, a very different focus, there is still a lot going on. A company that a lot of people are familiar with, but perhaps not as well where the growth is. Now, if people still think of Microsoft in the days of Windows, Office, they’re way beyond that I think.
Matt Frankel: I’m the guy who called Microsoft expensive when their market capital was $ 300 billion. Take everything I say here with a grain of salt. I watch this as I watch my investment in Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) today. If the stock market is appreciating an average of 10% per year, I want it to make 11% or 12%. I think it’s barely going to overtake the market in overtime which, if that’s what you want, is a great investment to make. But is that where you see it or do you see that it could double in the next few years or something like that?
Bordeaux: I think I’m more where you’re looking. I think that’s the most, like you’re going to be hoping to outperform the market by one or two percentage points. It’s not 20-30% growth. Now, if you’ve been watching for a year or two, it’s off the charts, but all of these big tech companies have been: Microsoft, Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG). You would think that it is impossible for them to grow as much as they have. I wouldn’t take the last year or two to extrapolate that. I think it should be more of a regular producer, because that’s what they’re doing now.
If you look at this subscription income stream, slowly, steadily people start spending more money, they add more seats, maybe you get a few more companies to sign up. But it won’t be 30%, 40%, 50% growth in the share price. Some of their lines of business are doing that right now, the Cloud stuff. But that won’t translate into a stock price growth at a high level because it’s such a massive business and has so much going on. But stable, Microsoft is a very, very, very important company to a lot of other companies, a lot of consumers. I don’t think they’re going to go away anytime soon, but I certainly put that in the category of probably lower risk, but probably not as high, plus a regular producer, almost a modern day industrialist, if you want to think of that. like that.
Trevor Jennevine: This is how I think of Microsoft. I think the company has very strong brand names, a strong competitive position in a number of different industries. When I buy a stock I’m generally looking for something that can double in five years, so 15% growth per year, I’m just not sure Microsoft matches that bill.
Bordeaux: Yes. If you’re looking for strong growth, this probably isn’t the stock to at least focus on in the beginning. But I think for everyone, if you already own it, at least for me personally, I’m not looking to sell it, and I’m not sure you already own it, that it’s just something you should put it on top of your sales list. I think you still have room to go. It is a nice fundamental part of our portfolio.
Jennevine: I think that’s a perfect way to describe it.
Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. Teresa Kersten, an employee of LinkedIn, a subsidiary of Microsoft, is a member of the board of directors of The Motley Fool. Matthew Frankel, CFP® owns Apple and Berkshire Hathaway shares (B shares) and has the following options: $ 140 short-term calls in November 2021 on Apple. Toby Bordelon owns shares of Alphabet (A shares), Apple, Berkshire Hathaway (B shares) and Microsoft. Trevor Jennevine has no position in the stocks mentioned. The Motley Fool owns and recommends Alphabet (A-shares), Alphabet (C-shares), Apple, Berkshire Hathaway (B-shares) and Microsoft shares. The Motley Fool recommends the following options: long January 2023 $ 200 calls on Berkshire Hathaway (B shares), long March 2023 $ 120 calls on Apple, short January 2023 $ 200 put on Berkshire Hathaway (B shares), short January 2023 calls 265 $ on Berkshire Hathaway (B-shares) and short calls of $ 130 in March 2023 on Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.