When Satya Nadella became Microsoft's (MSFT +1.08%) third CEO seven years ago, the tech giant was worth $300 billion. Today, it's worth over $2 trillion. Microsoft will likely keep growing over the next decade, but it could struggle to repeat its near-sevenfold growth since 2014.
So investors should consider a some smaller tech companies that have a shot at replicating Microsoft's massive gains. One potential candidate is salesforce.com (CRM +2.73%), a cloud enterprise software company that is currently worth about $230 billion. Let's examine Salesforce's growth rates and see if it could join the trillion-dollar club and either match or even surpass Microsoft by 2030.
Image source: Salesforce.
The past 10 years
Between fiscal 2011 and fiscal 2021, which ended this January, Salesforce's annual revenue rose from $1.66 billion to $21.25 billion, representing a compound annual growth rate (CAGR) of 29.1%.
Salesforce's sales skyrocketed as more companies adopted its cloud-based customer relationship management (CRM) services. It leveraged that strength to launch additional cloud sales, marketing, and analytics tools -- and gobbled up smaller companies to continuously expand that ecosystem.
Between fiscal 2010 and fiscal 2020, which ended last June, Microsoft's annual revenue rose from $62.48 billion to $143.02 billion, which equals a much lower CAGR of 8.6%.
Most of that growth occurred after Nadella took the helm and aggressively expanded Microsoft's "commercial cloud" business, which includes Office 365 (now Microsoft 365), Dynamics CRM, and Azure. Between fiscal 2014 and 2020, the segment's revenue jumped from $2.8 billion to $51.7 billion.
How the next decade might go
Last December, Salesforce estimated it could more than double its annual revenue to $50 billion by fiscal 2026. That would represent a CAGR of 18.7% between 2021 and 2026.
Salesforce expects the total addressable market for its entire portfolio of services (sales, service, marketing and commerce, platform, and analytics and integration) to grow at a CAGR of 11% between fiscal 2021 and 2025. It expects its own growth to outpace the broader market.
Salesforce didn't provide any forecasts beyond 2026, but it would only need to generate a CAGR of 14.9% for the following five years to hit $100 billion in annual revenue by fiscal 2031.
Microsoft hasn't offered any comparable long-term forecasts, but analysts expect its revenue to rise 16% this year and 12% next year. If Microsoft subsequently grows its revenue at an average rate of 10% per year, or at a CAGR of 10.8%, it could generate $400 billion in revenue by fiscal 2030.
Assuming that Salesforce and Microsoft's price-to-sales ratios remain roughly the same as today, Salesforce could be worth about $1 trillion by the end of 2030, while Microsoft's market cap could climb over $5 trillion.
But market caps don't matter all that much
So Salesforce could join the trillion-dollar club by 2030, but it probably won't be worth more than Microsoft.
However, Salesforce will likely grow faster than Microsoft during the 2020s. Companies will increasingly rely on its services to reduce their dependence on human employees, automate their operations, and crunch data to make business decisions. It will continue to gobble up smaller companies -- like MuleSoft, Tableau and Slack -- to expand its ecosystem beyond its market-leading CRM platform.
Meanwhile, Microsoft will keep growing as Azure expands its reach in the cloud infrastructure market, Windows continues its evolution into a service, and it launches new hardware and gaming devices.
It's impossible to tell which stock will perform better over the next decade, and it's naive to assume both companies will generate unfettered growth free from competition, disruption, or macroeconomic shocks. However, both of these tech titans should continue to expand -- so it really doesn't matter which one ends up with the bigger market cap by 2030.
