Subscription-based businesses can make very rewarding investments.
Microsoft has over 1 billion Windows users, with growing revenues from various subscription-based software services.
Netflix just crossed 300 million paid memberships, and it's still growing at double-digit rates.
Selecting stocks to buy and hold for a lifetime will naturally lead investors to focus on the best companies in the world. With all the uncertainty swirling around the markets and economy this year, this is more relevant than ever.
Some of the best companies to invest in are ones that sell a service that appeals to the masses, especially those that monetize those services through a recurring revenue model like subscriptions. These types of businesses are typically rewarded with higher valuations by investors due to their more predictable revenue streams.
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Microsoft(NASDAQ: MSFT) and Netflix(NASDAQ: NFLX) are elite growth stocks that fit this criteria. Here's why investors can be confident these stocks will continue to deliver excellent returns for years to come.
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1. Microsoft
Microsoft is a financially strong business that delivers essential software services for consumers and businesses. It has a large base of Windows users and is the second-leading cloud services provider. Its Azure cloud business posted impressive growth last quarter, indicating sustained growth for artificial intelligence (AI) services amid economic uncertainty in 2025.
Over the last decade, Microsoft shifted from relying on one-time purchases of software to a cloud-based services strategy that generates revenue from subscriptions. The Microsoft Cloud ecosystem includes revenue from Azure, Microsoft 365 office suite, and other services that all together grew 20% year over year last quarter to $42 billion.
Microsoft's partnership with ChatGPT maker OpenAI has been a huge growth driver. The integration of OpenAI has driven strong momentum for Azure. Revenue from the Azure enterprise cloud business grew 33% year over year last quarter, outpacing the broader cloud market.
Microsoft is competitively positioned to be a leader in AI. In 2022, the company disclosed that there were over 1.4 billion devices running Windows 11 or Windows 10. Earlier this year, management revealed there are over 400 million commercial 365 users, which provides a massive built-in base of businesses to adopt Microsoft's Copilot AI assistant.
Microsoft is a relatively safe growth stock to invest in AI due to the recurring revenue streams from various software services. The company generated $96 billion in net income on $270 billion of revenue over the last four quarters, and analysts expect the company's earnings per share to grow 12% on an annualized basis in the coming years.
2. Netflix
Netflix is hitting new highs after reporting strong first-quarter financial results. The stock has soared over the last few years on double-digit growth in revenue and paid memberships, but management still sees ample opportunities to sign up more members over the long term.
This is another highly profitable, subscription-based business that can support a growing share price. Netflix reported a revenue increase of 12% year over year in Q1 and guided for 15% growth in Q2, as the company prepares to launch new content from some of its most popular series.
Netflix now has over 300 million paid members. Its paid sharing initiative, which put an end to free password sharing, has helped drive more growth in memberships the last few years. Importantly, the strong financial results show that Netflix has the content to get people to pay up, which bolsters its long-term prospects.
Netflix is one of the most profitable entertainment studios in the industry. It has a massive budget to spend on new content to keep members happy. Last year, the company spent $17 billion on new films and shows. It can spend at this level while producing growing earnings to fuel shareholder returns.
The business generated $9 billion in net income on $40 billion of revenue over the last year -- a nearly 25% profit margin. Analysts expect improving margins to grow earnings faster than revenue, or 23% on an annualized basis, over the next several years. Management believes it has captured just a small portion of its addressable market, providing a long runway for shareholder returns.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Netflix. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
