We recently compiled a list of the 10 stocks that will make you rich in 5-10 years. In this article, we are going to take a look at where Microsoft Corp (NASDAQ:MSFT) stands against the other the Stock That Will Make You Rich in 5-10 Years.
Economic Resilience and Surprising Rate Cut Amid Geopolitical Tensions
The US economy grew by 3% in the second quarter, and the stock market hit all-time highs in the third quarter, averting fears of a recession at hand. While the economy has remained resilient for the better part of the year, the US Federal Reserve’s 50 basis point rate cut surprised many analysts.
Jamie Dimon believes the steep cut might be justified as geopolitical uncertainties can potentially disrupt the gains achieved by affecting supply chains and triggering uncertainties and fears in the market.
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Powell and other Fed officials are open to further lowering interest rates after last month’s half-point cut, but there’s market debate on the pace.
Soaring tensions in the Middle East with Israel invading Lebanon and threatening to attack Iran have triggered a layer of uncertainty, which Dimon believes could have a significant impact on the economy. Consequently, the banker believes that the 50 basis point cut could offer the much-needed economic support as inflation continues to drop.
Nevertheless, James Demerit, Main Street Research CIO, believes the upward momentum in the equity markets will persist as the macro environment improves. While valuations appear to have gotten out of hand, there are still opportunities for stocks trading below their fair value as the investment environment improves.
Apart from the magnificent seven stocks whose valuations have gotten out of hand, other stocks are trading at 16 times earnings, which, according to Demmert, is cheap considering the strong fundamentals that support a further rally. Companies that have consistently grown sales and profits should continue delivering regardless of the uncertainties around the US election and soaring geopolitical tensions.
According to Emily Bowersock Hill, CEO of Bowersock Capital Partners, it is time to be upbeat about the market heading into year-end. “The bull market has survived the year’s historically weakest quarter,” said Hill in an interview with CNBC. “It is likely to remain intact through at least the end of the year, as earnings remain strong, interest rates are moving lower and consumers are still spending.”
Which Stocks Could Make You Rich in 5 to 10 Years?
When considering which stocks to buy, it’s beneficial to ask, “Which industries are experiencing the most rapid growth?” Despite some sectors facing challenges post-pandemic, many are flourishing, offering abundant opportunities. The global economy is rapidly evolving, with industries like artificial intelligence (AI), healthcare, travel, online retail, cybersecurity, and green energy experiencing significant growth. The AI market alone is projected to reach $407 billion by 2027 (according to estimates from Markets and Markets). The Bureau of Labor Statistics projects that between 2020 and 2030, total employment in the United States will expand by 11.9 million, or 7.7%, to 165.4 million from 153.5 million.
Some of the top stocks that will make you rich in 5 to 10 years are companies that can rally as the global economy grows on the back of favorable monetary policies. Additionally, they include stocks of companies that are leaders in their respective fields and well-poised to benefit from technological changes such as artificial intelligence.
In an interview with CNBC, Savita Subramanian, BofA Securities head, reiterated utilities and large-cap real estate stocks are well positioned to perform heading into year end. Likewise, industrials and financials should receive a significant boost if the overall economy improves.
According to Subramanian, the idea of the Fed cutting is not only liquidity inducing that should benefit the equity market but a move that ends up cutting money market yields. With liquidity slowly moving out of short-term bonds, most of it is ending up in equity markets as investors take note of high-risk reward opportunities at highly discounted valuations. Subramanian believes dividend stocks and growth stocks are well-positioned to generate significant value going forward.
With this economic perspective in mind, let’s start our list of stocks that will make you rich in 5-10 years.
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Our Methodology
To compile the list of the stocks that will make you rich in 5-10 years, we sifted through multiple reports and rankings and compiled an initial list of 20 possible stocks that experts and analysts believe have multi-year growth opportunities. We then selected the 10 stocks that were the most popular among hedge funds and ranked them in ascending order based on the number of hedge funds that held stakes in them, as of the end of Q2 2024.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Holders as of Q2: 279
Amid the artificial intelligence race, Microsoft Corp (NASDAQ:MSFT) is arguably one of the stocks that will make you rich in 5-10 years, given the investments it’s made around the emerging technology. The company is also leveraging the technology to strengthen its cloud computing solution under Azure.
Azure is the source of the largest AI opportunity from all this. With a current % market share of 25%, Microsoft Corp (NASDAQ:MSFT) is the second-largest provider of cloud computing services after Amazon, and its new AI tools are helping it grow even further.
During the Q4 earnings call, the management reported that Azure now has 60,000 AI customers, which is approximately 60% more than it had during the same quarter last year. Given that Goldman Sachs projects that the cloud computing industry will generate $2 trillion in sales by 2030, Microsoft should be one of the beneficiaries, allowing it to generate more shareholder value.
AI is already driving some of that growth, and Microsoft stands to gain as more businesses turn to its AI cloud services to improve their own AI offerings.
Additionally, it has turned to technology to strengthen and enhance user experience on its office solutions, including Microsoft Office. Its investment of close to $13 billion in ChatGPT parent OpenAI has also had a hand in strengthening its search tool Bing sits to take on Google.
Microsoft Corp (NASDAQ:MSFT) regularly reports strong financial results; the most recent quarter was no exception. Its operating income and revenue grew by 15% annually, which is remarkable for a business of this size. Earnings per share (EPS) exceeded analysts’ estimates, landing at $2.95.
Microsoft Corp (NASDAQ:MSFT)’s ability to boost profitability while growing steadily is demonstrated by the growth of its earnings per share, affirming its ability to make shareholders rich. Over the previous five years, its outstanding share count has only dropped by about 3%, so a large portion of the growth can be linked to its improved earnings.
Amid the earnings growth, Microsoft continues to reward investors with a 0.80% dividend yield even as it trades at a premium with a price-to-earnings multiple of 31. In the second quarter, 279 hedge funds held positions in Microsoft (NASDAQ:MSFT), and their stakes amounted to $89.07 billion.
Baron Opportunity Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is the world’s largest software and cloud computing company. Microsoft was traditionally known for its Windows and Office products, but over the last five years it has built a $135 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. The stock contributed to performance because of continued strong operating results and investor enthusiasm regarding Microsoft’s leadership across the secular megatrends of AI and cloud computing. Recent business momentum continued to show evidence of the strength and attractiveness of Microsoft’s product portfolio among its customer set: (1) Azure OpenAI – its suite of AI services – is now used by 65% of the Fortune 100 and contributed 7% of Azure revenue (an annualized run rate of $5.2 billion); (2) GitHub Copilot – its AI code writing service – is bending the productivity curve for developers (reports of 40%- plus improvements in developer efficiency) and now has 1.8 million paid subscribers, with growth accelerating to over 35% quarter-over-quarter; and (3) Copilot Studio – its AI application service that makes it easier for anyone to build an application, automate a workflow, or create a Copilot using natural language. 30,000 organizations across every industry have used Copilot Studio to customize Copilot for Microsoft 365 or build their own, up 175% quarter-over-quarter. In the March quarter, Microsoft again reported better-than-expected financial results, highlighted by Microsoft Cloud growing 23% year-over-year, with the fastest commercial bookings in six quarters, and Azure accelerating to 31% constant currency growth, up from 28% in the previous quarter. June quarter guidance came in-line with consensus, but the company provided higher guidance for the most important segment, Intelligent Cloud, on the back of continued strong trends across Azure and Azure OpenAI. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes.”
Overall MSFT ranks 2nd on our list of 10 stocks that will make you rich in 5-10 years. While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MSFT, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
