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Wondering if Microsoft’s current share price is a golden opportunity or just the status quo? You are not alone, with many investors eyeing whether it’s undervalued or trading at a premium.
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Recently, Microsoft’s stock has pulled back, with a drop of 7.4% over the past week and 9.3% in the last month, but it’s still up 12.8% year-to-date and 14.1% over the last year.
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This recent dip comes as investors digest a flurry of announcements, including continued investment in AI, major partnerships like those with OpenAI, and broader tech market volatility. The combination of aggressive innovation and shifting market sentiment has given both optimists and skeptics something to talk about.
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Based on six key valuation checks, Microsoft scores 5 out of 6 for being undervalued. This strong showing sets the stage for a deep dive into standard valuation approaches and a look at an even better way to understand what Microsoft’s stock is truly worth by the end of this article.
The Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting all future cash flows it can generate and discounting those back to today’s value. This helps investors understand whether the current share price represents a bargain compared to Microsoft’s long-term earning potential.
For Microsoft, the DCF model uses its latest reported Free Cash Flow (FCF) of $89.4 Billion. Analysts forecast that this figure will continue to climb, with projections reaching $206.2 Billion in 2030. While analysts typically provide estimates only for the next five years, further forecasts such as those out to 2035 are extrapolated using industry methods, giving a long-term perspective on Microsoft’s growth potential.
Based on these calculations, the DCF model assigns Microsoft an intrinsic value of $609.57 per share. With the model’s intrinsic discount indicating the stock is 22.5% below its estimated fair value, this suggests Microsoft is currently undervalued. The numbers indicate that even after its strong run, there remains upside according to future cash flow potential.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Microsoft is undervalued by 22.5%. Track this in your watchlist or portfolio, or discover 918 more undervalued stocks based on cash flows.
MSFT Discounted Cash Flow as at Nov 2025
The Price-to-Earnings (PE) ratio is one of the most widely used valuation tools for profitable companies like Microsoft, as it relates a company’s share price to its earnings performance. This multiple is especially meaningful for established businesses where profits are both significant and expected to grow consistently. Investors often look to the PE ratio as a quick gauge of whether a stock is priced attractively relative to its profitability.
What constitutes a “fair” PE ratio is shaped by a company’s growth prospects and its perceived risk. Higher earnings growth and lower risk commonly justify a higher PE, while slower growth or greater uncertainty merit lower multiples. For context, Microsoft currently trades at a PE ratio of 33.5x. This is slightly below the Software industry average of 29.0x and just under the peer group average of 34.0x, positioning Microsoft in line with expectations for leading tech stocks.
However, looking beyond simple averages, Simply Wall St introduces the “Fair Ratio,” a more tailored benchmark that weighs Microsoft’s specific attributes, such as forecasted earnings growth, profit margins, market dominance, and risk profile. For Microsoft, the Fair Ratio is calculated at a much higher 57.2x, reflecting both its robust fundamentals and future growth runway. Because this approach adjusts for unique company and industry factors, it offers a clearer picture than industry or peer comparisons alone.
With Microsoft’s PE of 33.5x significantly below its Fair Ratio of 57.2x, the stock appears undervalued on this metric. The market may be underestimating the company’s long-term earnings potential relative to its risk and competitive position.
Result: UNDERVALUED
NasdaqGS:MSFT PE Ratio as at Nov 2025
PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1420 companies where insiders are betting big on explosive growth.
Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives, a smarter and more dynamic tool for investment analysis. A Narrative is your own story and perspective about a company’s future, built around concrete financial assumptions such as fair value, revenue growth, and long-term margins. Narratives connect the dots between a company’s journey, your forecasts, and what you believe its shares are truly worth. This empowers you to put numbers behind your view and track them in real time.
On Simply Wall St’s Community page, Narratives are designed to be simple and accessible for all investors. They let you project Microsoft’s earnings and fair value using your own assumptions, then compare it to the current price so you can decide whether to buy, hold, or sell. Best of all, Narratives update automatically whenever new news or earnings are released, so your thesis stays up to date with the latest data.
For example, while some investors expect Microsoft’s fair value to reach $700 based on aggressive AI-driven growth and margin expansion, others see a more cautious outcome near $360 given industry headwinds and execution risks. This showcases how Narratives reflect a wide range of thoughtful and up-to-date outlooks side by side. By exploring Narratives, you can join millions of users in making better, more individualized decisions backed by your own view of Microsoft’s future.
For Microsoft, however, we’ll make it really easy for you with previews of two leading Microsoft Narratives:
🐂 Microsoft Bull Case
Fair Value: $500.00
Current Undervaluation: 5.6%
Revenue Growth Assumption: 6.75%
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Warns that Microsoft’s current high valuation may be overly optimistic, given headwinds such as a shrinking PC market, increased Mac adoption in enterprises, and underperformance of the Xbox in console sales.
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Highlights risks around Microsoft’s dependence on the OpenAI partnership for its AI strategy, along with the financial gamble of massive data center investments and regulatory scrutiny.
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Points to potential long-term challenges from repeated layoffs and declining employee morale, which could hurt innovation and threaten Microsoft’s leading position.
🐻 Microsoft Bear Case
Fair Value: $423.14
Current Overvaluation: 11.6%
Revenue Growth Assumption: 10%
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Emphasizes strong catalysts like AI integration across Office and Azure, continued cloud growth, gaming expansion through Activision, and recurring enterprise software revenues.
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Notes key long-term positives including leadership in cloud, cybersecurity, advanced AI, and potential disruption from emerging technologies like quantum computing.
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Flags meaningful risks from regulatory actions, fierce competition in AI and cloud, slowing PC sales, cloud margin pressures, and the danger of overvaluation if growth expectations are not met.
Do you think there’s more to the story for Microsoft? Head over to our Community to see what others are saying!
NasdaqGS:MSFT Community Fair Values as at Nov 2025
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.
Companies discussed in this article include MSFT.
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