Missed Out On Microsoft? My Best Cloud Stock to Buy and Hold

Over the past eight years, Microsoft (NASDAQ: MSFT) transformed itself from an aging legacy software company into a high-growth cloud giant. Satya Nadella, who took the helm as Microsoft’s third CEO in early 2014, spearheaded the company’s “mobile first, cloud first” initiative which converted a large portion of its desktop software into mobile apps and cloud services.

Between fiscal 2014 and fiscal 2021, which ended last June, Microsoft’s annual cloud revenues rose from just 5% of its top line in fiscal 2014 to 41% in fiscal 2021. It also grew at a compound annual growth rate (CAGR) of 10%, as its earnings per share (EPS) increased at a CAGR of 17%.

Investors who bought shares of Microsoft on Nadella’s first day are now sitting on a total return of nearly 700%. Microsoft remains a rock-solid blue-chip bet for long-term investors, but it probably won’t replicate those massive multibagger gains over the next eight years as its cloud business matures.

Image source: Getty Images.

Therefore, growth-oriented investors who missed out on Microsoft’s previous rally might consider buying shares of a smaller cloud company which still has plenty of room to run: ServiceNow (NYSE: NOW).

How fast is ServiceNow growing?

ServiceNow’s cloud-based services help companies manage their digital workflows. It only served 602 customers in 2010, but it ended last year with over 7,400 customers — including approximately 80% of the Fortune 500.

ServiceNow was founded in 2003, and it went public in 2012. It raised $210 million with its IPO, and subsequently acquired a long list of smaller companies to expand its portfolio of cloud-based services.

Between 2012 and 2021, the company’s annual revenue rose from $244 million to $5.9 billion, representing a CAGR of 42.5%. Like many other high-growth cloud companies, ServiceNow was initially unprofitable. But over the past three years, it turned consistently profitable on a generally accepted accounting principles (GAAP) basis while keeping its gross margins above 80%.


FY 2019

FY 2020

FY 2021


$3.46 billion

$4.51 billion

$5.90 billion

Gross margin




Net income

$627 million

$119 million

$230 million

Data source: ServiceNow. GAAP basis.

In fiscal 2022, ServiceNow expects its subscription revenue, which accounts for most of its top line, to increase 26% as its non-GAAP operating margin remains unchanged at 25%. Analysts expect its revenue and non-GAAP EPS to increase 26% and 24%, respectively, for the full year.

A rosy outlook for the future

During an analyst day presentation in May, ServiceNow predicted it would generate more than $16 billion in annual revenue in 2026 — which would represent a CAGR of at least 22.1% from 2021. That also replaced its previous target for $15 billion in revenue by 2026, which it had only set last year. 

In January, CEO Bill McDermott told investors that the company’s “organic growth machine” was still in “full flight” and it didn’t need to rely on acquisitions to hit that long-term target. He also proclaimed that as “rising interest rates challenge others,” ServiceNow’s business model would continue to “flourish in any economic environment.”

McDermott believes ServiceNow’s business model is evergreen because it directly benefits from digital transformation trends across large organizations and the shift toward hybrid and remote work. Those secular trends are largely resistant to macroeconomic headwinds and often accelerate during economic downturns as companies streamline their operations.

Many of ServiceNow’s cloud-based peers share that confident long-term outlook. Salesforce (NYSE: CRM), the market leader in cloud-based customer relationship management (CRM) software, expects its revenue to rise 20% in fiscal 2023 (which ends next January) and continue growing at a CAGR of more than 16.3% between fiscal 2023 and 2026.

Could ServiceNow generate big multibagger gains?

ServiceNow currently trades at 64 times forward earnings and 12 times this year’s sales. That makes it a bit pricier than Salesforce, which trades at 35 times forward earnings and five times this year’s sales, but it’s also growing at a significantly faster rate.

If ServiceNow can generate $15 billion in annual revenue in 2026 with expanding margins and rising profits, then its stock could conceivably retain its premium valuation. If that happens, its stock could easily triple within the next four years. It could also gradually broaden its ecosystem with fresh acquisitions and evolve into a more broadly diversified cloud software giant like Microsoft or Salesforce.

ServiceNow’s stock could remain volatile this year as rising rates punish higher-growth tech stocks, but I firmly believe it will head much higher when the near-term headwinds finally dissipate.

Leo Sun has positions in Salesforce, Inc. The Motley Fool has positions in and recommends Microsoft, Salesforce, Inc., and ServiceNow, Inc. The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Rebate Rewards

Level 2 Rebate

Deposit $2,000 and get $200 Rebate
$ 200 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $2,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $200 Rebate

Level 1 Rebate

Deposit $1,000 and get $100 Rebate
$ 100 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $1,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $100 Rebate

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Act Fast - Promotion Ends In
Click Here To Get Started
Act Fast - Promotion Ends In
Click Here For More Info