microsoft (MSFT 1.22%) Over the past few decades, stocks have turned many shareholders into millionaires. After all, the software giant's rise to a $3 trillion market cap has been impressive, but it was recently overtaken and interrupted. apple As the world's most valuable business. Even if you're relatively late to the growth party, it's well worth joining such efforts.
The software giant's business is very different today than it was 25 years ago, and technology trends are sure to change many times over in the coming decades. But the big question for investors going forward is whether the stock can still generate market-beating returns, given Microsoft's current sky-high valuation. Let's take a look at the factors that could make this stock a long-term positive force for your retirement portfolio.
size and variety
Investors don't know which technology trends will dominate the industry in a few years, but they can feel pretty confident that Microsoft will remain a leading player as those trends emerge. The company already has strong exposure to many growth areas, including cloud enterprise services, video games, cybersecurity, and artificial intelligence. This diversity also increases value for large customers who are increasingly looking for comprehensive software solution providers.
Indeed, owning experts such as cybersecurity experts may lead to faster growth. palo alto networks, it's in the early chapters of its growth story. The maker of powerful firewall and cloud security products is aiming for above-average revenue growth for years to come as more businesses seek to protect their digital assets and workflows. However, Microsoft already has valuable relationships with most of the world's largest companies. It's not a stretch to believe that the software giant can build on its formidable market share position for years and decades to come.
Microsoft's financial strength is another big factor in its favor. The company had more than $140 billion in cash at the end of September. In the last quarter alone, he generated $30 billion in operating cash flow, with operating income up a whopping 26% year-over-year.
These rich financial resources provide a lot of value. Having that much cash means Microsoft can weather market downturns more easily than its smaller peers. We can actively invest in technological innovation, as we have recently done with AI. And if you miss out on new opportunities, you can use your cash to fund acquisitions and partnerships to maintain your leadership position in the next era of computing. Most technology companies don't have anywhere near that level of flexibility.
price and value
As you might expect, Microsoft stock is priced at a premium, reflecting most of the key benefits detailed above. Investors will have to pay more than 13 times annual sales for their company's stock, which is not far from the pandemic highs investors saw in early 2022. Amazon The e-commerce giant's profit margins are not as high as Microsoft's, but its relative sales are about three times higher.
Microsoft's high valuation and market capitalization mean future investor returns are necessarily limited. Still, this stock could still play a positive role in a retirement portfolio aiming to hit $1 million. Microsoft investors can expect the company to lead future technology changes while leveraging its strong position in the world's massive software industry. In other words, the tech giant has a good chance of creating more billionaire shareholders in the coming decades.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Demitri Kalogeropoulos has positions at Amazon and Apple. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, and Palo Alto Networks. The Motley Fool has a disclosure policy.