Could This Multitrillion-Dollar Stock Still Beat the Market Long-Term?

With a market capitalization of more than $2.3 trillion, it might seem like Microsoft (MSFT -2.45%) doesn't have a high likelihood of beating the market in the coming years, but don't be so sure. In this Fool Live video clip, recorded on Oct. 18, Fool contributors Matt Frankel, Toby Bordelon, and Trevor Jennewine discuss why Microsoft could still be a smart stock to hold for investors who want to beat the market over time.

Toby Bordelon: I think I always forget to look at the market cap when I talk about Microsoft, so let me do that really quickly. I think it's actually over two with $2.3 trillion right now for Microsoft. If anyone is out there thinking I'm only going to buy stocks that can 10X in the next five years, you might want to take a step back on this one, because the 10X is wildly unrealistic, I think, over a short timeframe.

Can it still grow, I guess is the biggest issue? Yeah, I think it can. I think it continues to do well. I have said this phrase, but this is not your father's Microsoft. This is not the Microsoft of the '80s and early '90s when it was all about buying Windows and buying Office. You go on to the computer store, you get the box software, you bring it home, you install it. That's not we're talking about now. They rate themselves out in the three market segments. One of course is Office basically, it's an enterprise segment, one is Cloud, Azure mainly, the other is what they call More Personal Computing, that's where Windows lives along with Xbox and along with the surface hardware manufacturing.

Really in the last year, I believe all of the last quarter definitely, they were in the same ballpark in terms of the revenue each segment generated, so they're fairly well diversified. But Azure is clearly growing and Cloud is clearly growing a lot; that's where their growth segment is right now. The More Personal Computing segment is falling off a little bit, growth is much slower there as you might expect. Even within their Office segment, they are moving more toward subscription model. It's both on the enterprise side and the consumer side. The idea is you pay an annual fee for subscription to Office, which gives you Microsoft Office, it gives you Teams, it gives you further consumer called Microsoft 365, it gives you Outlook Online. It gives you all kinds of stuff that they're moving people toward.

Definitely a very different model, a very different focus, still a lot going on. A company I think many people know well, but maybe not as familiar with where the growth is. Now if people are still thinking about Microsoft back in the Windows, Office days, they've moved well beyond that, I think.

Matt Frankel: I am the guy who called Microsoft expensive when its market capital was $300 billion. Take everything I say here with a grain of salt. I look at this as I look at my investment in Berkshire Hathaway (BRK.A -0.30%) (BRK.B -0.26%) today. If the stock market appreciates an average of 10% a year, I want it to do 11% or 12%. I think it's going to barely outpace the market overtime, which if that's what you want, that's a great investment to have. But is that where you see it or do you see it being able to double in the next few years or anything like that?

Bordelon: I think I'm more where you're looking for. I think it's the more, like you're going to hope you outpaced the market by one or two percentage points. This is not a 20%-30% growth. Now, if you look in the last year or two, it's been off the charts, but all these big tech companies have been: Microsoft, Apple (AAPL 0.52%), Alphabet (GOOGL -1.97%) (GOOG -1.96%). You would think it's impossible for them to grow as much as they have. I would not take the past year or two and extrapolate that out. I think it should be more of a steady grower, because that's what they are doing now.

If you look at that subscription revenue stream, slowly, steadily, people start spending more money, they add more seats, maybe you get a few more businesses to sign on. But it's not going to be like 30%, 40%, 50% growth in the stock price. Some of their business lines are doing that right now, the Cloud stuff. But it's not going to translate into that stock price growth at a high level because it's such a massive company and they've got so much going on. But steady, Microsoft is a very, very, very important company to a lot of other enterprises out there, a lot of consumers. I wouldn't think they're going away anytime soon, but I definitely put this in the category of probably lower risk, but probably not as high reward, more of a steady grower, almost a modern day industrial, if you want to think of it like that.

Trevor Jennewine: That's how I think about Microsoft. I think the company very strong brand names, strong competitive position in a number of different industries. When I buy a stock, I'm looking for something in general that can double in five years, so growing at 15% per year, I'm just not sure that Microsoft fits that bill.

Bordelon: Yeah. If you're looking for high-growth, this probably isn't the stock to focus on at or least initially. But I think for anyone out there, if you already own it, at least for me personally, I'm not looking to sell it, and I'm not sure if you already own it, that it's just something you should put on top of your list of sales. I think you've still got some room to go there. It's a nice anchor foundational part of our portfolio.

Jennewine: I think that's a perfect way to describe it.