Over the last decade, Microsoft’s share price (NASDAQ:MSFT) has climbed from around $37 to $404. That represents a return of nearly 1,000%. Here, I’m going to look at how much the mega-cap technology stock could be worth in another 10 years. Let’s crunch the numbers.
Forecasting Microsoft’s future stock price
There are a number of different ways to forecast a company’s future stock price. To forecast Microsoft’s future price, I’m going to use a sales-multiple approach. This involves trying to predict what the company’s sales will be in the future and then applying a certain multiple to get a market capitalisation and stock price. This approach is not perfect –it requires estimates and assumptions. But it could give us a rough indication of what MSFT stock could be worth in a decade’s time.
For the year ending 30 June 2024 (FY2024), Microsoft is expected to generate revenue of $244 billion. That would represent growth of approximately 15% year on year. Now, achieving 15% revenue growth every year for the next decade could be challenging. However, let’s say the company was able to grow its top line by 10% per year every year for the next decade. I think that’s realistic given its dominance in the technology space and its exposure to artificial intelligence (AI). That would take us to revenue of $633 billion by FY2034.
So, we have a projected sales figure. The next step is to apply a sales multiple to this figure to obtain a market capitalisation. Over the last decade, Microsoft’s price-to-sales ratio has ranged between seven and 15. Therefore, I’m going to apply a ratio of 10 to my sales forecast. Multiplying $633 billion by 10 gives us a potential market cap of $6.33 trillion. Given that Microsoft’s market cap today is $3.0 trillion, a market cap of $6.33 trillion translates to a share price of $852. This share price forecast suggests that Microsoft stock could be a solid investment over the next decade.
Of course, my sales forecasts could be off the mark. And so could my price-to-sales multiple. Playing around with these numbers, we can get widely different share price forecasts. For example, if revenue growth was to average 15% over the next decade (this takes us to sales of $987 billion) and we apply a price-to-sales multiple of 12, the share price forecast comes out at around $1,595.
Is it a good idea to buy Microsoft shares?
If you’re a long-term investor, I think it’s a good idea to own some Microsoft shares. This company operates in a number of growth industries including cloud computing, artificial intelligence, and video gaming. So, it has plenty of long-term growth potential.
That said, the stock can be expensive at times. For example, right now it has a forward-looking price-to-earnings (P/E) ratio of about 36, which is high. So, I think the best move with MSFT stock is to buy it on the dips when it’s a little cheaper.
Will MSFT shares go up in 2024?
While Microsoft shares appear to have a lot of long-term potential, it’s hard to know how they will perform in 2024. They have had a big run over the last year (+65%), and now look a little expensive. So, there’s a chance that we could see some profit taking in the near term. However, they are in a strong uptrend, powered by interest in AI. And trends can last a while, So, they could easily keep rising from here and deliver attractive returns in 2024.
- Related guide: How to invest in AI (artificial intelligence)
Edward Sheldon owns shares in Microsoft
Ed Sheldon CFA
Based in London, Edward is a distinguished investment writer with an extensive client portfolio comprising a diverse array of prominent financial services firms across the globe. With over 15 years of hands-on experience in private wealth management and institutional asset management, both in the UK and Australia, he possesses a profound understanding of the finance industry.
Before establishing himself as a writer, Edward earned a Commerce degree from the prestigious University of Melbourne. Complementing his academic background, he holds the esteemed Investment Management Certificate (IMC) and is a proud holder of the Chartered Financial Analyst (CFA) qualification.
Widely recognized as a sought-after investment expert, Edward’s insightful perspectives and analyses have been featured on sites such as BlackRock, Credit Suisse, WisdomTree, Motley Fool, eToro, and CMC Markets, among others.
