Can Microsoft Stock Help You Retire a Millionaire?

microsoft (MSFT 1.22%) Stocks have made many shareholders millionaires over the past few decades. After all, the software giant’s rise toward a market capitalization of $3 trillion has been fantastic, and it recently appeared to be surpassed. apologize The most valuable business in the world. Even if you’re relatively late to the growing party, joining in on that kind of journey is hugely rewarding.

The business of large software companies looks very different today than it did 25 years ago. Technology trends will change even more in the coming decades. But the biggest question for investors going forward is whether the stock can still generate market-beating returns, given Microsoft’s lofty valuation today. Let’s take a look at what could make this stock a positive force for your retirement portfolio over the long term.

Size and Diversity

Investors can’t know which technology trends will dominate the industry in the next few years, but they can be reasonably confident that as these trends emerge, Microsoft will continue to be the leader. It already has excellent exposure to many growth niches, including cloud enterprise services, video games, cybersecurity, and artificial intelligence. This diversity also increases our value to large customers who are increasingly looking for a comprehensive software solutions provider.

Of course, if you have experts like cybersecurity experts, you’ll see much faster growth. Palo Alto Networks, it is in the early chapters of its coming-of-age story. The maker of powerful firewall and cloud security products is targeting above-average revenue growth in the coming years as more businesses seek to secure their digital assets and workflows. But Microsoft already has valuable relationships with most of the world’s largest companies. It’s not a stretch to believe that the software giant could capture massive market share in the coming years and decades.

Resources are important

Microsoft’s financial strength is another big factor in its favor. The company had more than $140 billion in cash at the end of September. Operating profits grew 26% year-over-year, generating $30 billion in operating cash flow last quarter alone.

MSFT Cash from Operations (TTM) data from YCharts. TTM = Trailing 12 months.

These abundant financial resources add much value. That cash means Microsoft can survive market downturns more easily than its smaller rivals. Recently, we can invest aggressively in technological innovation, such as AI. And if you miss out on a new opportunity, you can use the cash to fund acquisitions or partnerships to maintain your leading position in the next era of computing. Most tech companies don’t have anything approaching that level of flexibility.

price and value

As you might expect, Microsoft’s stock is priced at a premium that reflects most of the key benefits detailed above. Investors would have to pay more than 13 times annual sales for the stock, which isn’t far from the pandemic highs investors saw in early 2022. Amazon The e-commerce giant’s profit margins aren’t as lucrative as Microsoft’s, but it steals about three times its profits comparatively.

Microsoft’s high valuation and market capitalization mean that investors’ returns from here will inevitably be limited. However, this stock can still play a positive role in a retirement portfolio aiming to hit $1 million. Microsoft investors can expect the company to lead future technological changes while leveraging its strong presence in the large global software industry. In other words, big tech companies have a good chance of producing more millionaire shareholders in the coming decades.