The corporate world is ruthless -- getting on top is hard, and staying there is even harder. But the companies that can succeed over time can be great investments. Technology conglomerate Microsoft (MSFT -0.18%) started with operating systems and still dominates that market today.
But adding new businesses over the years has catapulted Microsoft to a $2 trillion market value, and a $10,000 investment in 2013 would be worth $118,000 today. The company isn't sitting still -- potential growth opportunities could carry the stock to new heights over the coming years. Here is what investors should look for.
Continued cloud growth
Microsoft launched Azure in 2010, and its success played a significant role in the stock's excellent returns over the past decade. Azure is a cloud computing platform that offers various services, including storage, computing, security, networking, and more. Azure is part of Microsoft's Intelligent Cloud segment, which did $21.5 billion in revenue during the quarter ending Dec. 31, 2022. It's the company's largest segment at 40% of total revenue.
Today, Azure is the second-leading cloud platform in the world, with an estimated 21% market share, trailing only Amazon's AWS. More importantly, there is still a lot of growth left in the cloud market as companies worldwide ditch their on-premise computing systems in favor of the ease and cost savings of just renting the services from cloud platforms.
Statista estimates that public cloud services worldwide were worth nearly $415 billion in 2022, but that could grow to $525 billion this year and reach $882 billion by 2027. Microsoft could double its cloud business over the next five years if it holds its current market share.
Can artificial intelligence unlock new opportunities?
Artificial intelligence has generated a lot of attention on Wall Street in recent weeks, partially driven by Microsoft's multibillion-dollar partnership with OpenAI to integrate ChatGPT capabilities into some of its existing products. For example, Microsoft is revamping its Bing search engine, adding ChatGPT functions. Alphabet's Google is the king of search, conducting a staggering 93% of worldwide searches to Bing's 3%.
ChatGPT will enable users to have conversation-like queries in search. For example, rather than ask a question and get pages of results to sift through, Bing will now give actual answers and suggestions powered by ChatGPT's AI. Microsoft hopes a more engaging user experience will win users over from Google.
Search is Alphabet's largest business; it generates money from selling ads and priority placement in search results, amounting to $42.6 billion in just the fourth quarter of 2022. That is almost Microsoft's entire quarterly revenue, so it's a significant growth opportunity if Bing can chip away at Google's dominance.
Can the stock keep delivering?
Now worth roughly $2 trillion in market cap, Microsoft's massive size could impede investment returns over the coming years. However, there's still an upside for shareholders. Analysts believe that Microsoft can grow its earnings per share by an average of nearly 12% annually over the next three to five years.
The stock averaged a price-to-earnings (P/E) ratio of 29 over the past decade, and today's valuation is roughly on par with that. Assuming the stock's P/E and earnings growth remain steady, investors will see their money double every six years, so the next decade might lack the explosive returns that investors enjoyed from 2013 to this year.
MSFT PE Ratio data by YCharts
Hungry for massive returns? You may need to take on more risk than a stock like Microsoft. It's a blue-chip stock that's probably past its rapid-growth years, and instead, it offers investors a dependable business that might still outpace the market over the coming years. But overall, Microsoft has slid down the risk-reward spectrum and is a more tame stock than back then.
