Will Salesforce be worth more than Microsoft by 2030?

When Satya Nadella became Microsoft‘s (NASDAQ: MSFT) The third-largest CEO seven years ago, the tech giant was worth $ 300 billion. Today it is worth over $ 2,000 billion. Microsoft will likely continue to grow over the next decade, but it could struggle to repeat its growth nearly seven times since 2014.

Investors should therefore consider a few small tech companies that stand a chance of replicating Microsoft’s massive gains. A potential candidate is salesforce.com (NYSE: CRM), a cloud-based enterprise software company currently worth around $ 230 billion. Let’s take a look at Salesforce’s growth rates and see if it could join the trillion dollar club and match or even surpass Microsoft by 2030.

Image source: Salesforce.

The last 10 years

Between fiscal 2011 and fiscal 2021, which ended in January, Salesforce’s annual revenue increased from $ 1.66 billion to $ 21.25 billion, a rate of compound annual growth (CAGR) of 29.1%.

Salesforce sales have skyrocketed as more companies embraced its cloud-based customer relationship management (CRM) services. It leveraged this strength to launch additional sales, marketing, and analytics tools in the cloud, and engulfed smaller companies to continually expand that ecosystem.

Between fiscal 2010 and fiscal 2020, which ended last June, Microsoft’s annual revenue increased from $ 62.48 billion to $ 143.02 billion, which equates to a Much lower CAGR of 8.6%.

Most of this growth came after Nadella took the helm and aggressively developed Microsoft’s “commercial cloud” business, which includes Office 365 (now Microsoft 365), Dynamics CRM, and Azure. Between fiscal 2014 and 2020, segment revenue increased from $ 2.8 billion to $ 51.7 billion.

How could the next decade be

Last December, Salesforce estimated it could more than double its annual revenue to $ 50 billion by fiscal 2026. That would represent a CAGR of 18.7% between 2021 and 2026.

Salesforce expects the total addressable market for its entire service portfolio (sales, services, marketing and commerce, platform, analytics and integration) to grow at a CAGR of 11% between fiscal 2021 and 2025. He expects his own growth to overtake the larger market.

Salesforce didn’t provide any forecasts beyond 2026, but it would be enough to generate a 14.9% CAGR for the next five years to reach $ 100 billion in annual revenue by fiscal 2031.

Microsoft hasn’t offered a comparable long-term forecast, but analysts expect its revenue to grow 16% this year and 12% next year. If Microsoft subsequently grows revenue at an average rate of 10% per year, or a CAGR of 10.8%, it could generate $ 400 billion in revenue by fiscal year 2030.

Assuming Salesforce and Microsoft’s price-to-sales ratios remain roughly the same as they are today, Salesforce could be worth around $ 1 trillion by the end of 2030, while Microsoft’s market cap could exceed the $ 5,000 billion.

But market capitalizations don’t matter

So Salesforce could join the trillion dollar club by 2030, but it probably won’t be worth more than Microsoft.

However, Salesforce is likely to grow faster than Microsoft during the 2020s. Businesses will increasingly rely on its services to reduce their reliance on human employees, automate their operations, and analyze data to take action. business decisions. It will continue to engulf small businesses, like MuleSoft, Tableau and Soft – extend its ecosystem beyond its market-leading CRM platform.

Meanwhile, Microsoft will continue to grow as Azure expands its reach into the cloud infrastructure market, Windows continues to evolve into a service and launches new gaming hardware and devices.

It is impossible to say which stock will perform better over the next decade, and it is naive to assume that both companies will generate unhindered growth, without competition, disruption or macroeconomic shocks. However, these two tech titans are expected to continue to grow – so it doesn’t matter which one ends up with the larger market cap by 2030.