Opinion: These Will Be the 2 Largest Stocks by 2030

Opinion: These Will Be the 2 Largest Stocks by 2030

Famous investor Warren Buffett gave a good lesson to investors during Berkshire Hathaways 2021 annual meeting. He showed viewers two cards. One was the list of the top 20 businesses by market value at the end of March 2021, while the second was the same list in 1989. Not a single company topped both lists, illustrating how companies rise and fall from grace over seemingly short periods of time. .

Company turnover due to capitalist competition is important for investors to consider over long periods of time. But I think the same companies will top this list in 2030 that were near the top at the start of this decade. This is for one reason: cloud computing infrastructure. Here’s why I think Microsoft (MSFT -0.80%) and Amazon (AMZN -1.40%) will be the two largest companies in the world in 2030.

1. Is Amazon’s potential in cloud computing still underestimated?

Most people know Amazon for its e-commerce empire, and for good reason. Its various retail, subscription and advertising business lines generate hundreds of billions of dollars a year in revenue.

But the real value in Amazon’s business comes from Amazon Web Services (AWS). The cloud computing division is the leader in this rapidly growing industry that allows companies to outsource servers and computing infrastructure, among many other services.

Last quarter, the division posted $76.5 billion in 12-month revenue, up 34% year over year. It is also highly profitable, generating $22.9 billion in operating income, or an operating margin of 30%.

Right now, AWS has an estimated 33% market share of the cloud computing industry, a number that has remained fairly stable since 2017. If the company can maintain this market share, there is a massive opportunity for AWS to become a much bigger business in 2030 due to the gale-force winds behind cloud computing.

By 2030, third-party analysts expect the cloud computing market to reach $1.5 trillion in annual spending. If AWS has a 30% market share and a 30% operating margin that year, that would equate to a whopping $135 billion in annual operating revenue.

Remember that this does not include Amazon’s other lines of business, such as e-commerce, Prime Video and advertising. Add it all up, and Amazon has a clear path to a market cap of $3 trillion to $4 trillion by 2030. That makes it a prime candidate to become one of the world’s largest businesses that year.

2. Don’t underestimate Microsoft’s Azure

Like Amazon, Microsoft has built a huge business over the past decades through its Office software suite, personal computers, Xbox and advertising divisions. These divisions are the main reason why Microsoft’s net income reached $72.7 billion in fiscal year 2022, making it one of the most profitable companies in the world.

This decade, Microsoft’s legacy business lines should continue to do well, but the majority of its growth will come from Azure, its cloud computing division, which is similar to AWS. Last quarter, Azure’s revenue grew a whopping 35% year-over-year (42% in constant currency) and the division maintains a 21% share of the cloud computing market. Its market share has actually grown since 2017, when it was estimated to be only 13.7%, meaning it grew faster than AWS over that time frame.

Taking the $1.5 trillion total industry estimates for 2030 and assuming Azure maintains its 21% market share, Microsoft will earn $315 billion in revenue from that division at the end of this decade. With an operating margin of 30% (which, remember, is what AWS has), that equates to $95 billion in annual operating revenue.

Again, as with Amazon, if you combine Azure with Microsoft’s other lines of business, it’s likely that this stock could be worth several trillion dollars in 2030. The cloud computing market will be one of the largest worldwide in 2030. If the two dominant vendors — Amazon and Microsoft — can maintain their respective market shares, I think it’s likely that they will be the two largest companies in the world by the end of this decade.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com, Berkshire Hathaway and Microsoft. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool has a disclosure policy.

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