Market leadership aside, Microsoft (NASDAQ: MSFT) has plenty of room to run. From a market perspective, there is still an untapped total addressable market and market penetration to drive results and valuation over the next decade. The latest estimates show that Internet use is still less than 70% of the global population, growing, and less than 60% of all business is stored digitally. Because Microsoft is a leader in Internet and cloud services, is leaning hard into the AI revolution, and expanding services per client, it should be able to gain share to compound results and upward potential for the stock price. 

And Microsoft isn’t sitting back to let the market grow independently. It is inking deals weekly intended to expand and accelerate the use of the Internet and cloud services like the one with Hitachi (OTCMKTS: HTHIY). The deal, a collaboration worth billions over the next three years, includes Hitachi embedding Microsoft Cloud, Copilot, Azure OpenAI Services, and Dynamics 365 for use across its empire and by its clients. Hitachi aims to train up to 50,000 AI professionals as part of the deal. 

Microsoft is Well-Supported by the Market

Microsoft has ample market support and the analysts to lead it higher. MarketBeat.com tracks 34 analysts with current ratings, and they have been revising their estimates to be higher all year. The consensus estimate implies at least a 10% upside and is up 40% in the last 12 months as the analysts try to catch up with the blooming AI outlook. The revisions are leading the market to the high end of the range, which is another 1000 to 2000 basis points above the consensus.

Among the opportunities for Microsoft is to expand its services, open up new addressable markets, and sustain growth at a higher level for longer. Among the recent advances is the launch of Microsoft’s Dynamic 365 Contact Center “boogeyman.” This is an AI-powered first providing contact-center-as-a-service functionality that is already disrupting the industry. Analysts view the move as increasing competition and potentially slowing the deal pipeline for pure plays like Five9 (NASDAQ: FIVN).

Among the risks for investors today is spending. Microsoft is spending billions to build out its data centers and invest in and acquire new technologies like Touchcast. Touchcast is a New York-based startup that caches common AI search queries. The goal is to catalog common queries to speed up generative AI outputs and improve efficiency. This is important for an industry as energy-intensive as Bitcoin mining and exponentially larger. Global consulting and outsourcing firm Accenture (NYSE: ACN) is also an investor in Touchcast. 

Other new developments that will help drive Microsoft's business over the next decade include plans to spend another $3.2 billion to bolster the cloud and AI in Sweden. The deal with Sweden includes a commitment to train nearly 2.5% of the population in AI functionality and services and to expand its data centers with the addition of 20,000 GPUs or graphics processing units. 

Microsoft’s Uptrend is Intact Despite the High Valuation 

Microsoft is a highly-valued company at 35x this year’s earnings, but it is growing at a double-digit pace and is expected to sustain double-digit growth for the next several years. Factoring in the expected growth puts the stock at a much lower mid-20s valuation, with additional growth expected over the long term. 

Because Microsoft tends to command a premium valuation and most blue-chip mega-cap tech trades near 30x earnings, investors may expect price-multiple expansion to support the price over time. Assuming a 35x valuation, 35x next year’s earnings give a target of $465, aligning with the analysts' consensus price target. At the same time, 35x the 2026 outlook yields a target of $536, aligning with the most recent analysts' revisions and the high-end of the analysts' target range, a 10% to 20% upside that may be reached by early 2025.