Microsoft (MSFT 1.28%) was founded in 1975. It went public 11 years later in 1986 with a valuation of $777 million, and it has since grown into one of the largest companies in the world with a market capitalization of $3.3 trillion.
That means investors who bought Microsoft stock at its initial public offering (IPO) and held it until now would be sitting on a gain of 424,610% (excluding dividends). In dollar terms, an investment of just $240 back then would be worth a whopping $1 million today.
Microsoft was originally a software enterprise, and some of its earlier products, like Windows and Word, are still massively popular today. But the company has expanded into gaming, cloud computing, computer hardware, and now, artificial intelligence (AI), which could be Microsoft's largest opportunity ever
A track record of success spanning decades
Microsoft spent a decade developing computer operating systems after it was founded, which culminated in the 1985 release of Windows. Today, it's estimated Windows is installed on more than 1.6 billion active computers and devices worldwide.
Microsoft's famous word processor -- Word -- is another software success story. It's now part of Microsoft 365, alongside a suite of other apps, including Excel, PowerPoint, Teams, Outlook, and more, which are used by over 1 billion users globally.
But Microsoft is more than a software giant because its Surface line of notebooks and devices has become a major success. It's also a gaming juggernaut as home to the Xbox ecosystem and game development studio Activision Blizzard, which it acquired for $69 billion in 2023.
But when it comes to driving Microsoft's growth, investors are mostly focused on the company's cloud platform Azure, which helps businesses store data, develop software, and host websites, among hundreds of other services. Azure is becoming a critical access point for AI and attracting some of the world's largest organizations as customers.
AI could unlock a new phase of growth for Microsoft
Last year, Microsoft rocked the tech sector when it announced plans to invest $10 billion in ChatGPT creator OpenAI. It has since used a combination of its own AI models and the start-up's latest GPT-4 models to create Copilot, a powerful virtual assistant for consumers and businesses. It's capable of answering complex questions and rapidly generating content like text, images, and computer code to boost productivity for the user.
Copilot is now integrated into 365, Windows, the Edge internet browser, the Bing search engine, and Azure. During the fiscal 2024 third quarter (ended March 31), Microsoft said 60% of the Fortune 500 companies were already using Copilot for 365 alone. A handful of tech giants (including Nvidia) have each purchased more than 10,000 seats.
This is a huge financial opportunity for Microsoft because more than 400 million existing 365 enterprise seats are eligible to add Copilot to their plans for an additional fee. It could eventually translate to billions of dollars in additional recurring revenue for the company each year.
As I mentioned earlier, AI is also becoming a critical part of the Azure cloud platform. Azure OpenAI Service gives businesses access to leading pre-built AI models like GPT4, Dall-E, and Llama, which they can use to speed up the development of their own applications.
Azure grew its revenue 31% year over year during the fiscal third quarter, which was the fastest pace in over a year. The result was helped by AI, which contributed 7 percentage points to that growth -- a number that continues to increase each quarter. Almost two-thirds of Fortune 500 companies are now Azure OpenAI Service customers, which highlights how quickly they're adopting AI in the cloud.
NASDAQ: MSFT
Key Data Points
Microsoft can still reward shareholders over the long term
To be clear, the best returns for Microsoft shareholders are likely in the rearview mirror. The company's market capitalization is too big at this point to turn a $240 investment into $1 million again, but that doesn't mean Microsoft can't provide investors with attractive returns going forward.
The sheer size of the AI opportunity could drive an acceleration in Microsoft's revenue growth over the long term. Global consulting firm PwC believes AI will add $15.7 trillion to the global economy by 2030 alone. Since Microsoft could deliver the technology to millions of businesses in the cloud and over a billion consumers through its existing software products, the company is perfectly positioned to capture a large share of that value.
So while the stock won't make you a millionaire with just a few hundred dollars invested upfront, any size position in Microsoft can still offer AI-fueled, market-beating returns in this decade and beyond.
