Microsoft (NDQ:MSFT): There’s still a lot more growth left in this one

Microsoft (NDQ:MSFT) is our International Stock of the Week, but it really needs no introduction. We all use its products in our everyday lives; it successfully transitioned from a hardware to a software company and then to a cloud company and is worth over US$3tn today (a feat only Apple and Nvidia have achieved right now). Moreover it has managed a ~10% return in 2025 and to beat both the S&P500 and NASDAQ for several years now.

Source: Company annual report FY24

Sounds great, doesn’t it? But, how can a >$3tn company get any bigger? We will tell.

Introduction to Microsoft (NDQ:MSFT)

Look at Microsoft’s annual report and you’ll see it has several different segments – 10 to be exact. But the majority of revenue comes from 2 segments – Server products & Cloud services and Office products & Cloud services. Following behind are Windows products and then LinkedIn.

As you can see, it is a highly diversified business. It began in 1975 and went public in 1986, led by Bill Gates until he handed the reins over to Steve Ballmer. Ballmer was succeeded in 2014 by Satya Nadella who has held he role ever since and worked his way up for 2 decades prior to that. Over time, Microsoft rose to dominance of the tech world, then had to share power after missing out on the ascendance of smartphones even in spite of growing its sales and profits.

Under Nadella’s tenure, the company has sought to become cloud-focused and clean up its reputation after more than a decade of being fined several times for anti-competitive behaviour as well as share price stagnation.

Microsoft revised its mission statement to ’empower every person and every organisation on the planet to achieve more’. And its cloud ambitions are a big part of that – its products serve everyone from small businesses to the US Department of Defence.

Still growing and set to continue to grow

Let’s take a look at its most recent results for FY24, even though it will be releasing FY25 results in August. The company uses July 1-June 30 despite being a US company, apparently because it aligns greater with the patterns of their customers. It made $245.1bn in revenue (up 16%) and a profit of $88.1bn (up 22%), with the latter translating to $11.80 earnings per share.

Of all its segments, it was was ‘Intelligent Cloud’ that had the greatest jump in revenue (20%) and in divisional profit (31%). Growth in demand for Azure and other cloud services was exactly the reason for the growth.

The most recent update out of the company was its Q3 results in which it reported 13% revenue growth and 18% profit growth. Consensus estimates for FY25 anticipate $279bn in revenue (14% higher) and a $99.5bn profit (up 13%). For FY26, $316.4bn revenue and a $112.1bn profit; and for FY27, $362.4bn revenue and a $131.1bn profit. Looking further ahead, the company expects to surpass $500bn in revenue in FY31.

The mean share price is US$507.32, which is 10.5% higher than right now. This growth may not seem to be that high but given Microsoft is nearly $3.4bn, this would result in over $300bn in shareholder value being created. For comparison’s sake, that is more than 3 CSLs!

But where is this growth going to come form? It is going to come from growth in the Cloud, that Microsoft is in a box seat to capture a huge share of with it an AWS holding up to 70% of all Cloud spending according to Ofcom. We have noted in a few articles before some research from Goldman Sachs estimating that the transition to the Cloud is just 20% complete.

Goldman also estimated that annual revenues are US$235bn compared to enterprise IT revenues of US$1.4tn and the Cloud could easily grab that and even more from non-digital spending.

You can obtain this growth for 30.4x P/E, 19.3x EV/EBITDA and 2.5x PEG for FY26. This is the most expensive of the 3 stocks in the ‘US$3tn club’ (Apple and Nvidia being the other 2), but not by much. Apple is 26.5x P/E and 2.4x PEG while Nvidia is 31x P/E and 0.9x PEG. Looking at the other 4 of the so-called ‘Magnificent Seven’:

• Amazon is US$2.2tn and is 33x P/E;
• Tesla is US$1.1tn but at 118.8x P/E
• Meta is more than half as cheap (at US$1.6tn) and is 25x P/E; and
• Alphabet is US$2tn and 16x P/E

Looking at some of Microsoft’s other peers, Snowflake is over 150x P/E, WorkDay is over 30x P/E whilst Salesforce and Adobe are only 25x P/E.

Our valuation

Investors thinking Microsoft cannot grow any further than US$3.4tn are mistaken. There is growth left in this one.

The challenge is that the share price can fluctuate day to day, particularly when the company releases its earnings. And when growth is less than perfect, there can be an impact.

However, few investors should go wrong with this company.

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