Investing in Microsoft and Johnson & Johnson: Long-Term Potential Remains Strong
Microsoft (NASDAQ: MSFT) and Johnson & Johnson (NYSE: JNJ) are leaders in their fields, boasting impressive histories and delivering substantial returns for long-term shareholders. Despite concerns about their future growth, both companies still offer valuable investment opportunities.
Market Position and Challenges
Some investors worry that entering the market now is too late. With a market capitalization of $2.6 trillion, Microsoft faces skepticism about its future growth potential. At the same time, Johnson & Johnson struggles with numerous talc-related lawsuits, recently encountering setbacks in its legal strategies.
Nevertheless, these challenges do not suggest that investors should disregard these companies. Here’s why Microsoft and Johnson & Johnson are still appealing options for those seeking long-term growth and dividend income.
1. Microsoft: Adapting to Economic Realities
Microsoft operates various manufacturing facilities globally, producing products such as Surface computers, specific software versions, and Xbox consoles. Recent tariffs imposed during the Trump administration may affect production costs, potentially lowering earnings. Further complicating its prospects, Microsoft’s significant size poses challenges to maintaining high growth rates.
To navigate these headwinds, Microsoft generates substantial cash flow, enabling it to adapt to evolving economic conditions. For example, it may look to expand its U.S. manufacturing capabilities to mitigate some of the impacts from tariffs.
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Moreover, Microsoft is bolstered by its strong brand, which allows the company to pass increased costs onto consumers without losing significant market share. Its ability to succeed through various market conditions underscores its resilience.
Significantly, Microsoft’s cloud division, Azure, presents substantial growth potential that is less impacted by tariffs. Azure has been a standout performer for Microsoft, and developments in artificial intelligence (AI) further enhance its growth trajectory.
As of the second quarter of its fiscal year 2025 (ending December 31, 2024), Microsoft’s AI business reported an annual run rate exceeding $13 billion. This figure, while small relative to its total quarterly revenue of $69.6 billion, highlights a significant upward trend, with AI run rates soaring by 175% year-over-year against a backdrop of 12% total revenue growth. The potential for expansion remains significant.
With Microsoft’s ongoing leadership in cloud computing and AI, the company continues to have strong growth avenues. Its dividend payouts also reflect stability; Microsoft has increased its dividends by 168% over the past decade. Notably, the share price has dipped 7% this year, making this an opportune moment for growth-focused and income-driven investors to consider purchasing the stock.
2. Johnson & Johnson: Strong Fundamentals Amid Legal Challenges
The pharmaceutical sector has, for now, remained shielded from tariffs under the current administration, providing temporary relief for Johnson & Johnson’s core revenue streams. However, the company faces ongoing legal battles related to claims that its talc products caused cancer. Recent legal maneuvers through a subsidiary’s bankruptcy failed to resolve numerous lawsuits, and a judge rejected its latest attempt earlier this month. Johnson & Johnson has stated it will not appeal and intends to defend itself in court, emphasizing its success in winning 16 of the last 17 cases in this area over the last eleven years.
This is not the first time Johnson & Johnson has encountered setbacks in managing these lawsuits. Previous rulings indicate that the company does not face financial distress from these legal claims, which undermines the rationale for seeking bankruptcy protection.
Despite these obstacles, Johnson & Johnson maintains a robust operational framework and a solid balance sheet, holding a credit rating that surpasses that of the U.S. government—one of only two publicly traded companies to do so alongside Microsoft. This strength underlines its ability to weather current and future challenges.
The company’s pharmaceutical and medical technology divisions remain influential and continue to generate consistent revenue and profits, supplemented by a strong pipeline of new products. With a history of over a century marked by innovation, Johnson & Johnson is likely to continue its trend of breakthroughs in the long term.
Additionally, the company boasts a distinguished dividend program, having raised its dividends for 62 consecutive years, earning the title of Dividend King. This track record positions it favorably to continue rewarding shareholders with future increases in payouts.
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Prosper Junior Bakiny has positions in Johnson & Johnson. The Motley Fool has positions in and recommends Microsoft, as well as recommends Johnson & Johnson. They have suggested short and long positions on Microsoft stock options as part of their investment strategy. Please refer to their disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
