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Microsoft's Trillion Dollar Question


  • Evercore ISI made a very aggressive prediction.
  • Microsoft's valuation is unlikely to hit $1 trillion any time soon, partially due to the impact of share repurchases.
  • Microsoft nevertheless should provide solid returns going forward.
  • Shares of Microsoft look attractive from a risk-reward view point.

Article thesis

Some analysts believe that Microsoft's (NASDAQ:MSFT) market capitalization could reach $1 trillion by 2020, which is far too aggressive, I think. Even without this happening Microsoft's shareholders should see solid returns over the coming years, which makes Microsoft's shares worthy of a closer look from a risk-reward view point.

Why a trillion dollar market capitalization seems unrealistic

Evercore ISI analysts have claimed that Microsoft's market capitalization could reach $1 trillion by 2020, i.e. in a little bit more than two years (they also stated that this could happen even before 2020).

ChartMSFT Market Cap data by YCharts

In this YCharts graph we see that Microsoft is currently valued at just shy of $650 billion, which means that its market capitalization would have to rise by roughly 54% through 2020 for Evercore ISI's prediction to come true. This does not, however, mean that Microsoft's share price would have to rise by only 54%, too:

source: Microsoft's Annual Form 10-K

In Microsoft's annual report we see that the share count has dropped significantly over the last two years: from 8.25 billion in 2015 to 7.83 billion in 2017. If we assume that the pace of share repurchases remains the same over the coming years, the share count would average 7.20 billion shares in 2020.

If Microsoft's market capitalization were to hit $1 trillion in 2020, Microsoft's share price would thus have to rise to $139 ($1 trillion in market cap divided by 7.2 billion shares).

ChartMSFT data by YCharts

We see that Microsoft's share price is around $84 right now, which means that shares would have to rally about 65% from the current level in order to hit the $139 price target that would be required in order to bring the company's market capitalization to the trillion dollar level.

This article was written by

Jonathan Weber profile picture
Leader of Cash Flow Club
The Investment Community where your "Cash Flow is King"
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Analyst’s Disclosure: I am/we are long JNJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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