That was just over six years ago apple It became the world’s first trillion-dollar company. Now, there are many other companies with a market capitalization of more than $1 trillion, and a few companies worth more than $3 trillion.
The stock market can do almost anything in the short term, so it’s impossible to know how a company will perform in 2025. But Microsoft (NASDAQ:MSFT) He has what it takes to chart a course toward steady growth, which can’t be said for all companies worth more than a trillion dollars
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This is why Microsoft stands out as the giant’s best overall buy Growth stocks.
What impresses me most about Microsoft is its ability to enhance the quality of its earnings while continuing to take risks and innovate. In recent years, it has experienced transformational growth while maintaining many of its decades-old software solutions.
The company has integrated artificial intelligence (AI) into the highly profitable smart cloud segment. It continues to expand its AI assistant tool, Copilot, across the Microsoft 365 software suite and other aspects of its business.
For example, GitHub Copilot has become the most AI-driven developer tool. According to the company’s Q4 FY2024 earnings call, GitHub’s annual revenue run rate is now $2 billion.
On October 21, Microsoft announced New independent agents Which can be assigned to specific tasks through Copilot Studio. Businesses can create agents for simple administrative tasks such as processing sales orders. Agents can help generate sales leads, manage data, customer service, and more. This new product announcement is just one of many examples of how Microsoft maintains a solid foothold in many end markets.
Too often, we see companies reach a certain size and falter due to inefficiency. Their size works against them, and they lose the innovative spirit that made them successful in the first place.
Microsoft uses its size to its advantage while avoiding making it a weakness. It has intensified spending to accelerate growth, but not to the point of extravagance. The company still buys back a lot of stock and sees significant increases in its dividend every year.
A company has many levers it can pull to create shareholder value. It does not rely entirely on new ideas or rely heavily on its old products and services. It is not an all-or-nothing growth stock and does not pay dividends and dilute shareholders.
In fact, Microsoft is buying back enough stock to offset its stock-based compensation. As you can see in the following chart, it has had consistent, significant increases in its earnings and reduced its stock count by 9.6% over the past decade despite the rapid expansion of stock-based compensation, which exceeded $10 billion for the first time in a fiscal year. 2024.
Perhaps most important of all, Microsoft has more cash, cash equivalents, and marketable securities than debt on its balance sheet. It ended fiscal 2024 (ending June 30) with $18.32 billion in cash and cash equivalents, $57.23 billion in short-term investments such as marketable securities, and only $42.69 billion in long-term debt.
Often times, investors focus on the quantity of a company’s revenue and profits without determining whether these results are sustainable. There are countless examples of companies that have developed a successful product that has delivered incredible results. But the product proved to be a fad, demand declined, results declined, and the company was unable to realize another big idea.
Or the product is overtaken by a better alternative: think of Apple replacing BlackBerry, Netflix Moving beyond Blockbuster, or simply the shift to online sales that bankrupted companies like RadioShack.
Microsoft arguably has the best moat of any company worth more than $1 trillion because it does so many different things well — Microsoft Cloud, Windows, business and consumer office products, LinkedIn, Xbox content and services fueled by Microsoft-owned Activation Blizzard, and server Products, devices, enterprise services and more.
Here’s a look at Microsoft’s 2024 financial results by sector.
|
Sector revenues |
2024 results |
|---|---|
|
Productivity and business operations |
$77.73 billion |
|
Intelligent cloud |
$105.36 billion |
|
Other personal computing |
$62.03 billion |
|
Total revenue |
$245.12 billion |
|
Sector operating income |
|
|
Productivity and business operations |
$40.54 billion |
|
Smart cloud |
$49.58 billion |
|
Other personal computing |
$19.31 billion |
|
Total operating income |
$109.43 billion |
|
Operating margin |
44.6% |
Data source: Microsoft.
A decade ago, Microsoft had revenue of $86.83 billion and operating income of $27.9 billion. So, while its revenues are up just 161.9% over the past 10 years, its operating income has risen nearly four-fold. The intelligent cloud business alone generates more revenue and nearly doubles operating income than the company as a whole booked a decade ago.
Microsoft faces competition across all of its sectors, but the company does an excellent job of developing new tools that can be used across the business. Copilot and AI in general are great examples of how a similar solution can be deployed across its sectors and improve them all.
In short, it would take a lot to damage the structural integrity of Microsoft’s earnings profile. So, although you could say the stock looks expensive at 37.1 times earnings, the quality of those earnings and the ability to grow dividends through multiple segments and stock buybacks make it a much better value than it appears at first glance.
For these reasons, Microsoft stands out as the company with the best balance between risk and potential reward valued at more than $1 trillion.
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Daniel Fulber He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Netflix. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has Disclosure policy.
If I could only buy shares in one trillion-dollar company until the end of 2025, I would choose this premium growth stock Originally published by The Motley Fool