Could This Multitrillion-Dollar Stock Still Beat the Market

With a market capitalization of more than $2.3 trillion, it might seem like Microsoft (NASDAQ:MSFT) 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 (NYSE:BRK.A)(