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To start out with a Microsoft stock forecast, most people usually think of its Windows computers, the Microsoft Office Suite or maybe the Internet Explorer browser. While these are definitely big parts of Microsoft’s business, I’m not sure that most people realize just how massive Microsoft’s business is. Once you start to rattle off things that Microsoft owns the list seems to just keep on going. For example, Microsoft owns:

  1. LinkedIn
  2. Xbox
  3. Azure Cloud Computing
  4. Skype (Which has since been incorporated into Microsoft Teams)
  5. Bing
  6. Github
  7. Hololens
  8. Microsoft Surface
  9. Microsoft Office 365

Almost all of these business lines could easily stand on their own and be competitive within their industries. For example, LinkedIn is one of the biggest social media sites on the Internet. Xbox is one of the most popular gaming systems. Hololens is at the forefront of virtual and augmented reality.

Here are some VR stocks and video game stocks to consider investing in as well.

It’s no wonder that Microsoft has such a lofty mission statement. Microsoft’s mission is to “empower every person and organization on the planet to achieve more.” Talk about setting the bar high (as well as somewhat vague).

To its credit, Microsoft has definitely churned out results to defend statements like this. In 2021, Microsoft’s tech helped billions of people around the globe. It helped NASA conduct research on Mars. It helped Anheuser Busch use real-time insights to brew beer more efficiently. It also helped hundreds of companies navigate around the catastrophic Suez Canal blockage. This doesn’t even account for the billions of people who use its hardware or office suite.

Microsoft is currently one of just a few trillion-dollar companies in the world. So does that mean that Microsoft stock is one of just a few need-to-have stocks for your portfolio?

Let’s take a look at a Microsoft stock forecast and find out.

Microsoft Stock Forecast

Microsoft stock forecast looking at MSFT logo and sign

Microsoft is expected to announce Q3 earnings after market today October 26th, 2021.

Note: I’m not a financial advisor and am just offering my own research and commentary. Please do your own due diligence before making any investment decisions.

What Does Microsoft Do?

As mentioned, Microsoft is involved in a ton of different businesses. The best way to describe Microsoft is a technology company that provides computer software, consumer electronics, personal computers and related services. It employs 181,000 employees, most of whom live in the United States.

Here are the different business lines that Microsoft outlined in its most recent annual report:

  • Applications and Infrastructure
  • Data and artificial intelligence
  • Developer tools
  • Power platform
  • Business Applications
  • LinkedIn
  • Modern work
  • Security
  • Gaming

A thorough breakdown of Microsoft’s entire business could probably fill a book. In fact, Microsoft has so many new projects in the works that it took a 16-page report (single-spaced) just to announce them. Part of the reason that Microsoft has so many new projects is that it spends around $20 billion on research and development each year.

For reference, Uber (which is not a small company) pulled in about $10 billion in total revenue in 2020. This means that Microsoft casually spends double Uber’s total 2020 revenue just on research. This number was second for software companies, only behind Google.

Microsoft Recent Announcements

A full list of recent announcements for this Microsoft stock forecast might take days to read. Due to this, I’ve pulled just a few of the biggest highlights:

  • Metaverse – Microsoft is considered one of the top companies contributing to the metaverse. If you haven’t heard of the metaverse, it’s a future version of the internet. The metaverse will combine virtual reality, augmented reality, and digital worlds. For more on this check out these metaverse stocks.
  • LinkedIn leaving China – Microsoft is pulling LinkedIn from China after struggling to comply with the Chinese government.
  • Microsoft for Startups – A startup incubator that’s in the works. This project will seek to give more opportunities to entrepreneurs.

With so many projects in the works, let’s see how much money Microsoft is actually making.

MSFT Stock Price Forecast

In fiscal year 2021, Microsoft announced $168 billion in revenue which was an 18% increase from 2020. Its revenue has been increasing by an average of about 13% annually over the past five years.

In 2021, Microsoft reported $61 billion in net income. This was close to a 40% increase from 2020. If it were to announce a one-time bonus for its employees using these profits alone, all 181,000 employees would get a check for $337,000.

Microsoft also reported a net profit margin of 36% in 2021. This is incredibly impressive for a company of its size. Also, Microsoft’s security business and LinkedIn both passed $10 billion in annual revenue in 2021.

Microsoft’s stock has reacted appropriately to these numbers. Its stock has increased 42% so far in 2021 and is up over 400% over the past five years. Since 2010, Microsoft stock is up about 900%.

With all of that said, let’s take a look at the most important question: Should you buy Microsoft stock?

Should I Buy Microsoft Stock? Potential Upsides

It’s fairly clear that Microsoft stock has been unstoppable in the last few years. The company has been a money-printing machine that made more profit in FY 2021 than most companies will ever be worth. Its business is also so diversified that the management team must be struggling to come up with new ventures. On the Robinhood trading app, Microsoft has a “buy” rating from 95% of investors.

The chart of Microsoft stock over the past five years is also everything an investor could dream of. Microsoft stock is up just over 400% in five years, or 80% annually. Just a reminder that the average annual return of the stock market is about 10%. To see how investments can grow, check out our free investment calculator.

Even if Microsoft stock continues to achieve half of its success in the next five years, it might quadruple the return of the market. However, we know that past results of a stock aren’t always a great predictor of its future movement.

With that said, let’s take a look at a few things that could go wrong for Microsoft in the future. The risk is important to consider in this Microsoft stock forecast.

Should I Buy Microsoft Stock? Potential Downsides

Anytime a business (or stock) is this successful, it means that expectations tend to be sky-high. Moving forward, anything less than stellar will disappoint investors. For example, Microsoft grew its net income by 40% in FY 2021. Due to its size, conventional wisdom says that it won’t be able to do this consistently in 2022, 2023, etc.

Failure to meet sky-high expectations from Wall Street could result in a short-term correction of the stock’s price. Investors buying Microsoft stock now run the risk of buying right before a potential correction. That said, there is no telling when (or if) this will happen.

Also, we can’t talk about Microsoft without talking about Congress’ desire to regulate big tech. On one hand, no meaningful big tech regulations have ever actually been enforced. However, the threat of regulation will always be a threat to investors. One piece of recent legislation might prohibit companies from favoring their own products on their own marketplaces. This would be more damaging for tech companies that own marketplaces such as Amazon, Facebook and Google. However, there’s no telling what type of legislation could be proposed in the future.

In a worst-case scenario, Microsoft could be deemed monopolistic. It might then be forced to sell off certain business lines, which might hurt its bottom line. Even the announcement of regulation could cause a massive selloff of Microsoft stock in the short term.

I hope that you’ve found this Microsoft stock forecast to be valuable when deciding whether or not to invest in Microsoft stock. As usual, all investment decisions should be based on your own due diligence and risk tolerance.

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