Year-to-date, Microsoft (NASDAQ:MSFT) stock has risen almost 10% and over 50% in 2023. I argue that MSFT stock is one of the safest long-term investments due to its reliance on enterprises and exposure to accelerated growth through AI. It has a sustainable base of customers that will keep earnings strong while having new growth initiatives to grow earnings, making it the perfect long-term stock for stability and growth.
Here are some factors to consider for MSFT stock holders.
Long term stability
Microsoft enjoys a stable base of customers that has kept earnings growth strong for years. It’s grown at a 12.62% 10-yr CAGR while earnings have grown at a 14.62% 10-yr CAGR.
This is impressive given that Microsoft was founded almost fifty years ago, and is still seeing growth that is well beyond most established giants.
A key reason for Microsoft’s consistent growth and likely future stability is that most of its customers are enterprises, with over two-thirds of its revenue coming from sources that are B2B (Business-to-business).
In key business markets such as computer software and productivity suites, no other competitor has meaningfully ever penetrated the market like Microsoft, and it looks like it will remain that way long into the future since Microsoft is the go-to software in many industries.
Azure and AI synergy
One of MSFT stock’s most exciting verticals is Azure, even beating Amazon. Meanwhile, its acquisition of OpenAI provides lots of synergies for Azure and its productivity tools to grow even faster.
According to Precedence Research, the global cloud computing market is expected to grow from $446.5 billion in 2022 to $1.61 trillion in 2030, representing a 17.4% CAGR. Azure now has 24% of the market share and is gaining market share at the expense of Amazon.
One of the key reasons for this growth is the incorporation of generative AI into Azure, which is seeing huge growth. Microsoft CFO Amy Hood reported that “6 points of revenue growth in the Azure and cloud services division came from AI in the latest period, up from 3 points the prior quarter,”
AI is also helping Microsoft grow its productivity tools. Traditional power users of the Microsoft suite (Excel, Powerpoint, Word etc.) now have access to Copilot, Microsoft’s generative AI tool that has gained 1.3 million paid users in just a couple fo months.
Copilot is a major development that can make Microsoft’s productivity tools more powerful and potentially steal market share from Google searches.
Dividends for future
For long-term investors, Microsoft’s dividends are something to keep note of. In the past 10 years, dividends have grown from $0.92 per share to $2.72, representing an 11.4% 10-year CAGR. Currently, its dividend yield is only 0.75% and is lower than in previous years. However, it’s only because Microsoft’s share price has appreciated so much in recent years.
Because earnings and free cash flow are projected to see healthy growth, especially with artificial intelligence, dividends will no doubt keep growing.
Conclusion
With Microsoft seeing such stability from enterprises and AI revolutionizing its current products, combined with stable dividend growth, Microsoft will likely continue to be a giant in the future and there is no going wrong in purchasing its stock price even if we see fluctuations in the short term.
On the date of publication, Michael Que did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The researchers contributing to this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
