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When the stock market is trading at a record high, it's easy for investors to feel as if they've missed the boat. But in these situations, the best strategy is to zoom out and look at the bigger picture. The S&P 500 (SNPINDEX: ^GSPC) has soared by 480% over the last 25 years, and while past performance isn't a reliable indicator of future results, I'm willing to bet the index will trade much higher over the next quarter of a century.
Some individual stocks have done even better over the long term. Microsoft (NASDAQ: MSFT), for instance, boasts a 25-year return of 1,100%, so an investor who parked $10,000 in its stock in 2001 would be sitting on $120,000 today. But considering the company is a leader in areas like cloud computing and artificial intelligence (AI), it's likely to continue delivering strong returns in the future.
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Microsoft has a market capitalization of $3.1 trillion as I write this, so it's already the world's fourth-most valuable company. But here's why I predict it will maintain its position, or potentially even climb up the ladder by 2050.
Copilot is Microsoft's AI chatbot and virtual assistant, which is embedded into the majority of its existing software products. Users can access it for free in Windows, Bing, and Edge, and it's available as a paid add-on for businesses using the 365 productivity suite, which includes applications like Word, Excel, and Outlook.
The paid versions of Copilot represent an enormous financial opportunity for Microsoft. Companies all over the world pay for over 400 million 365 licenses for their employees, and all of them are candidates for the Copilot extension. So far, companies have added the assistant to 20 million licenses, which represents a very modest penetration rate of just 5%. However, add-ons were up 250% year over year during Microsoft's fiscal 2026 third quarter (ended March 31), so adoption is ramping up quickly.
The Copilot for 365 extension costs around $30 per license, per month, so this one product alone could be worth tens of billions of dollars in annual recurring revenue for Microsoft over the long term.
AI requires a tremendous amount of computing capacity, which is why most development happens inside large data centers fitted with thousands of specialized chips from suppliers like Nvidia. Most businesses can't afford to build this infrastructure themselves, so they rent it from cloud providers like Microsoft Azure.
Demand for AI computing capacity is so high that Microsoft ended the third quarter with a staggering $627 billion order backlog from customers who are waiting for more data centers to come online, and that number doubled year over year. To meet this demand, the company plans to double its global data center footprint in the next two years alone -- but demand will probably still outstrip supply even at that stage.
But in addition to infrastructure, Azure also offers a platform called Foundry where businesses can tap into the latest AI models from leading third parties like OpenAI, which they can use to accelerate the development of AI software and agents.
Overall, Azure's revenue grew by 40% year over year during the third quarter, which marked an acceleration from its second-quarter growth of 39%. This signals strong momentum in the cloud business, which could continue for years if the $627 billion infrastructure backlog is anything to go by.
Microsoft went public in 1986 at a split-adjusted price of $0.073 per share. Therefore, based on its stock price of $414.20 as of the close on Friday, May 1, it has delivered a compound annual return of 24.1%. It won't be easy to maintain that rate of return until 2050 and beyond, because the company already has at least 1.6 billion users across its product portfolio, so growth will get harder to come by from here.
However, AI could certainly drive strong returns over the next few years at least, because products like Copilot will encourage existing customers to spend significantly more money. Plus, Microsoft stock is trading at an attractive valuation relative to the rest of the tech market, which opens the door to upside in the near term.
Based on Microsoft's trailing 12-month earnings of $16.79 per share, its stock trades at a price-to-earnings (P/E) ratio of just 24.6, which is close to its cheapest level in 10 years. Therefore, the stock would have to soar by 37% just to trade in line with the Nasdaq-100 technology index, which has a P/E ratio of 33.9. That would catapult its market cap to $4.2 trillion, making it the world's third-largest company as things stand today.
Even if Microsoft stock delivered a very modest compound annual return of just 5% between now and 2050, it would still become a $10 trillion company. If it were to grow by 10% annually, its valuation would top $30 trillion instead.
Based on the mature nature of Microsoft's business, I think the real outcome will probably be somewhere in between, even if returns are much higher in the short run because of the AI tailwind.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool has a disclosure policy.
Prediction: This Will Be 1 of the World's Most Valuable Stocks in 2050 was originally published by The Motley Fool