‘Magnificent 7’ stock Microsoft (MSFT:NASDAQ) has been a phenomenal long-term investment. Over the last decade, it has climbed from $41 to $388, turning $10,000 into more than $90,000. Can the tech stock continue to deliver for investors over the next 10 years? I think so. Here’s my Microsoft stock price forecast for 2035.
Significant long-term growth potential
Before we crunch the numbers, it’s worth looking at Microsoft’s business model. Because this is no ordinary software company.
Today, Microsoft operates in a range of industries including business productivity solutions (Office, Teams, etc.), cloud computing (Azure), artificial intelligence (AI), video gaming (Xbox), computer hardware, and social media (LinkedIn). So, it has plenty of long-term growth potential.
What excites me the most is the potential in cloud computing and AI. Over the next decade, these industries are forecast to grow at compound annual growth rates (CAGRs) of around 14% and 30% respectively.
Given that Microsoft is a global leader in both of these industries, the company’s future looks bright. Looking ahead, its revenues should continue to grow at an attractive rate.
Forecasting a future stock price
Now, there are a number of ways to forecast a company’s future stock price. To forecast Microsoft’s future stock price, I’m going to use a sales-multiple approach. This involves trying to predict what the company’s sales will be in the future and then applying a multiple to get a future market capitalisation and stock price.
This approach is not perfect. Ultimately, it requires a number of estimates and assumptions. But it could give us a rough indication of what MSFT stock could be worth in a decade’s time.
Long-term revenue forecasts
For the fiscal year ending 30 June 2025, analysts expect Microsoft to generate revenue of $276.9 billion. That would represent an increase of 196% (or 11.5% annualised) from the revenue figure 10 years earlier.
Microsoft may not be able to generate the same level of growth over the next 10 years. But let’s say that it was able to generate top-line growth of 10% per year over the next decade. That would take revenue to around $718 billion by mid-2035.
Applying a sales multiple
We now need to apply a sales multiple to get a projected market capitalisation. This is where things get a little subjective as over the long term, Microsoft’s price-to-sales ratio has fluctuated quite a bit. Today, it’s around 11 but over the last decade it has been as high as 14 and as low as five. A bullish investor is likely to apply a higher sales multiple than a bearish investor.
What we can do, however, is come up with base case, bull case, and bear case sales multiples. This offers a more comprehensive range of potential valuations.
My forecasts
I will go with a multiple of eight for my base case, 10 for my bull case, and six for my bear case. Applying these to the 2035 sales forecast of $718 billion, we get potential market capitalisations of $5.7 trillion, $7.2 trillion, and $4.3 trillion (versus $2.9 trillion today).
Ignoring stock buybacks and employee stock compensation to keep things simple, these market caps translate to stock prices of $767, $969, and $579. $767 is my base case stock price forecast while $969 and $579 are my bull and bear case stock price forecasts respectively.
Is Microsoft stock worth buying today?
Given these forecasts, I believe Microsoft stock is worth buying for the long term. Over the next decade, I think it has the potential to deliver attractive returns for investors.
If my base case was to come to fruition, and the stock was able to climb to $767 by 2035, it would represent a gain of about 100% from here. That would take a $10,000 investment to around $20,000.
However, if my bull case was to play out, and the stock was able to climb to $969 by 2035, it would represent a gain of about 155%. That would take a $10,000 investment to around $25,500.
Of course, my predictions could end up being way off the mark. When it comes to individual stocks, anything can happen. If growth was to stall for some reason, the stock could underperform. I’m relatively confident in the long-term growth story, however, given the company’s competitive advantages.
Edward Sheldon owns shares in Microsoft
Based in London, Edward is a distinguished investment writer with an extensive client portfolio comprising a diverse array of prominent financial services firms across the globe. With over 15 years of hands-on experience in private wealth management and institutional asset management, both in the UK and Australia, he possesses a profound understanding of the finance industry.
Before establishing himself as a writer, Edward earned a Commerce degree from the prestigious University of Melbourne. Complementing his academic background, he holds the esteemed Investment Management Certificate (IMC) and is a proud holder of the Chartered Financial Analyst (CFA) qualification.
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