{"id":118253,"date":"2026-07-24T21:09:14","date_gmt":"2026-07-24T21:09:14","guid":{"rendered":"https:\/\/www.europesays.com\/ai\/118253\/"},"modified":"2026-07-24T21:09:14","modified_gmt":"2026-07-24T21:09:14","slug":"microsoft-msft-stock-may-be-43-undervalued-after-fresh-ai-deal-news","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/ai\/118253\/","title":{"rendered":"Microsoft (MSFT) Stock May Be 43% Undervalued After Fresh AI Deal News"},"content":{"rendered":"\n

Never miss an important update on your stock portfolio<\/a> and cut through the noise. Over 7 million investors trust Simply Wall St to stay informed where it matters for FREE. <\/p>\n

Microsoft stock has pulled back from its highs and is down over the past year, yet valuation checks suggest the market may be underpricing the company, with both the intrinsic value estimate from a Discounted Cash Flow (DCF) approach and earnings multiples pointing to upside relative to the current share price. <\/p>\n

Over the past 5 years Microsoft has returned 38.8%, which shows that even after recent weakness the longer term shareholder experience has still been positive. <\/p>\n

Heavy AI infrastructure spending and partnerships such as those with Mistral and Databricks can support long term cash flow, while regulatory actions and legal challenges around AI and cloud services may weigh on how much of that value investors are prepared to pay for. <\/p>\n

Microsoft currently screens as undervalued in 6 of 6 valuation checks<\/a>. In addition, the DCF based intrinsic value estimate sits about 42.5% above the market price, so the broader signals lean cheap rather than fully pricing in its AI ambitions. <\/p>\n

The issue now is whether Microsoft’s recent share price weakness is offering genuine value or simply reflecting risks that the intrinsic value models and multiples are underestimating. <\/p>\n

Microsoft delivered -24.7% returns over the last year. See how this stacks up to the rest of the Software industry.<\/a> <\/p>\n

Is Microsoft a Bargain on Cash Flow? <\/p>\n

The Discounted Cash Flow (DCF) model used here projects the cash that Microsoft can return to shareholders and then discounts it back to today. Based on the latest figures, Microsoft generated about $93.7b of free cash flow over the last twelve months, and the model assumes those cash flows continue to grow rather than shrink, in line with its mature but still expanding software and cloud franchises. <\/p>\n

Under these assumptions, the DCF points to an intrinsic value of about $663.85 per share. This is roughly 42.5% above the current market price and implies that the stock screens as undervalued on cash flows. The recent sell-off across the “Magnificent Seven” following concerns about heavy AI infrastructure spending helps explain why the price is lagging this intrinsic estimate, even as Microsoft continues to commit large sums to AI and cloud capacity. <\/p>\n

On this DCF view, Microsoft stock currently appears undervalued, with the market pricing it well below the level suggested by its projected cash flows. <\/p>\n

Story continues <\/p>\n

Our Discounted Cash Flow (DCF) analysis suggests Microsoft is undervalued by 42.5%. Track this in your watchlist<\/a> or portfolio<\/a>, or discover 38 more high quality undervalued stocks<\/a>. <\/p>\n

\"MSFT<\/a> MSFT Discounted Cash Flow as at Jul 2026 <\/p>\n

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Microsoft.<\/a> <\/p>\n

Is Microsoft Still Cheap on Earnings? <\/p>\n

The P\/E ratio suits Microsoft because earnings are still the key anchor for how investors look at large, established software and cloud companies. On this measure, Microsoft trades on about 22.6x earnings, which sits below both the broader software industry average of roughly 27.0x and a peer group average of about 24.2x. <\/p>\n

A fair P\/E of about 42.6x, based on a model that factors in Microsoft’s size, margins, growth profile and risk, is well above the current multiple. On this framework, the shares screen as undervalued. Even with heavy AI related capital spending and ongoing regulatory scrutiny around cloud and AI services, the current P\/E does not match the level suggested by those fundamentals and the company’s positioning in software and cloud. <\/p>\n

On earnings, Microsoft stock looks undervalued, with the current P\/E sitting well below both sector benchmarks and the model’s fair multiple. <\/p>\n

\"NasdaqGS:MSFT<\/a> NasdaqGS:MSFT P\/E Ratio as at Jul 2026 <\/p>\n

See what the numbers say about this price \u2014 find out in our valuation breakdown.<\/a> <\/p>\n

The Microsoft Narrative: What Would Justify Today’s Price? <\/p>\n

Simply Wall St Narratives for Microsoft pick up where the valuation gap leaves off by spelling out which expectations for Microsoft’s growth, margins and earnings would need to hold for the stock to be worth materially more or materially less than today’s price on the Community page. Rather than relying on a single multiple or model point estimate, each narrative lays out the assumptions behind its fair value so you can compare them with future results as they are reported. <\/p>\n

Community views on Microsoft are wide apart, with one camp focused on the cash machine and the other on what they see as thinner long term economics. <\/p>\n

Bull case: 18% undervalued <\/p>\n

“A business that generates $71.6 billion in free cash flow, maintains a 45.6% operating margin, earns roughly 28 cents of profit on every dollar of invested capital, and holds a net cash position of $49 billion is not a business in crisis…” <\/p>\n

Read the full Bull Case<\/a> to see why Microsoft could be undervalued<\/a> <\/p>\n

Bear case: 6% overvalued <\/p>\n

“Forward real earnings growth remains anchored in the 4 to 6% range, below historical norms but supported by pricing power, scale, and eventual margin normalization…” <\/p>\n

Read the full Bear Case<\/a> to see why Microsoft could be overvalued<\/a> <\/p>\n

Do you think there’s more to the story for Microsoft? Head over to our Community to see what others are saying!<\/a> <\/p>\n

The Bottom Line <\/p>\n

For Microsoft, both the Discounted Cash Flow (DCF) intrinsic value estimate and the earnings multiple view point to the stock looking undervalued rather than fully pricing in its AI and cloud ambitions. The key question is whether heavy AI infrastructure spend and regulatory scrutiny cap how much of that potential ultimately flows through to shareholders. From here, the crux of the debate is whether Microsoft can sustain attractive cash generation and margins as AI scales, or whether the current discount simply reflects a market that is more cautious about those long term economics. <\/p>\n

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. <\/p>\n

Companies discussed in this article include MSFT<\/a>. <\/p>\n

Have feedback on this article? Concerned about the content? Get in touch<\/a> with us directly. Alternatively, email editorial-team@simplywallst.com<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"Never miss an important update on your stock portfolio and cut through the noise. Over 7 million investors…\n","protected":false},"author":2,"featured_media":88952,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[420,7829,7613,2656,49782,12049,320,7828],"class_list":["post-118253","post","type-post","status-publish","format-standard","has-post-thumbnail","category-microsoft","tag-azure","tag-azure-ai","tag-cash-flow","tag-cloud-services","tag-discounted-cash-flow","tag-intrinsic-value","tag-microsoft","tag-microsoft-ai"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/posts\/118253","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/comments?post=118253"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/posts\/118253\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/media\/88952"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/media?parent=118253"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/categories?post=118253"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/tags?post=118253"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}