Buy and hold forever is a bold concept because so few stocks deserve that level of attachment. However, technology conglomerate Microsoft (MSFT +0.17%) is one of the few in a small group that warrants that consideration.
It boils down to a combination of past performance and future opportunities, all tied together with stellar financials that are tough to beat. I'll break everything down below.
Here is why you should nibble on Microsoft stock and hold your shares indefinitely.
Let's dive in.
Microsoft features a collection of wide-moat businesses
The company goes back to the earliest days of the personal computer. Today, the operating software known as Windows is still dominant, along with a handful of other key businesses that all feed revenue to Microsoft. Its products and services are sorted into three business units:
- Productivity and Business Processes: Microsoft 365 software, LinkedIn, Microsoft Dynamics.
- Intelligent Cloud: Azure, cloud services, enterprise services.
- More Personal Computing: Windows software, gaming, Bing, and Edge.
Microsoft has established multiple products as top (or in the mix) competitors in various industries. Windows still owns 72% of the desktop operating system market, and its 365 software suite is deeply ingrained in the corporate world. Azure is the world's second-leading cloud platform, with a 23% global share. It dominates gaming through PC and is one of only a few gaming console makers.
This translates to a whopper of a business doing $227 billion in sales and $67 billion in free cash flow. The cash flow has made Microsoft a genuine dividend growth stock. Despite its nearly $3 trillion valuation, the business is still growing at a mid-teens rate. Total revenue grew 18% year over year in Q2 of Microsoft's quarter ending Dec. 31.
It's a key player in AI's future
Microsoft's rise to technology dominance isn't a lucky occurrence. That takes foresight and execution, and Microsoft has flexed that skill again through its partnership with OpenAI, the creator of ChatGPT. ChatGPT became a sensation last year, but Microsoft's ties started in 2019. That relationship has blossomed to make Azure the exclusive cloud provider for OpenAI's workloads.
That's a tremendous growth opportunity as OpenAI, led by Sam Altman, expands to new projects, including Sora, a text-to-video engine, and humanoid robotics via a partnership with robotics company Figure.
Microsoft has also launched Copilot, an artificial intelligence (AI) digital assistant that could threaten the traditional search engine model that Alphabet's Google has dominated for two decades. How much this impacts Microsoft's growth remains to be seen, but if AI is truly a momentous opportunity, Microsoft is positioned well for it.
NASDAQ: MSFT
Key Data Points
Iron-clad financials
Every company faces adversity at one point or another. How prepared a company is for that adversity is what separates the stocks you get rid of from the ones you hold. Microsoft is arguably the most financially sound business in existence. Why? Few companies generate $67 billion in cash flow, which, in this case, exceeds what most businesses make in yearly sales.
The pros agree. The major credit firms that rate corporate debt give Microsoft an AAA rating. There are only two companies in the world with such a rating; the other is Johnson & Johnson. That rating exceeds even the U.S. government, which can indirectly print infinite money via the Federal Reserve.
If the government financially implodes, our stock portfolios might be the least of our problems. Microsoft's better credit rating is a testament to its prowess. It takes an exceptional company to justify buying and holding it forever, and Microsoft is just that.
