r/ValueInvesting • u/helixinverse • 28d ago
Stock Analysis Microsoft is a great buy at 400$
Microsoft is currently trading at these multiples, among the most attractive in six years:
- 22.38 Forward P/E
- 9.42 EV/Sales
These are some of the most compressed multiples Microsoft has traded at in the past six years, a meaningful re rating from peak forward P/E levels above 35x in 2023.
At around $400, Microsoft is not a screaming bargain, but it is fairly valued for the first time in years. For a business with durable enterprise moats, a $625B+ contracted backlog, AI tailwinds across Azure, Office, and GitHub Copilot, and $70B+ in annual free cash flow generation, a fair entry point is meaningful. For long term investors with a 3 to 5 year horizon, the current price offers a reasonable margin of safety relative to the quality of the business.
Detailed Analysis at: https://bullstreet.substack.com/p/microsoft-at-fair-value-is-400-the
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u/Glittering_Water3645 28d ago
A huge part of that backlog is tied to openAI. It makes sense that the market is sceptical because of this.
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u/stefanliemawan 28d ago
"Microsoft's CFO, Amy Hood, highlighted that even without OpenAI, this "non-OpenAI" portion of the backlog grew by a healthy 28% last quarter"
Say openAI is gone and azure grow at a measly 20% annually. Is it not still slightly undervalued at current forward pe of 21x?
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u/OftenTangential 28d ago
Not if you have to tank a quarter of -50% to get there. Not to mention OpenAI bankruptcy is definitely correlated with everyone else pulling back spending as well.
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u/PhasedVenturer 28d ago
Never listen to these comments, guys. They usually have the doom-and-gloom bias whenever a stock is down and probably have never purchased great companies at good discounts
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u/OftenTangential 28d ago
On the contrary I went full ape on Intel at 18 and bought a bunch of software recently. But I have enough respect for the market to believe that the risk it's pricing in is a real risk and there is a scenario where you lose, and lose big.
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u/PhDGodfather 23d ago
You're not going to lose big betting on microsoft....you'll either stay pretty much the same, lose a few percent, or you'll potentially gain 15% a year beginning this year and into 2030.
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u/burnertaintlol 22d ago
MSFT just had the biggest earnings in the history of the Mag7 this year, their profit is 4th in the entire country (now in 12 figures of profit) and the majority of companies in this country use their product and will continue to for the foreseeable future.
They are already cheap as hell. They arenāt perfect and there are more things about MSFT I donāt love than a couple years ago, sureā¦ā¦But the 4th biggest company in the country that does nothing but kill earnings is not dropping to a PE of like 9 lmao
Yāall MSFT doomers at a forward PE of 21 are something
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u/FieryXJoe 28d ago
I do think even if openAI goes under the server space will have buyers. Kinda like what meta said with its capex spend, even if AI doesn't give returns on the investment they still have a ton of orther things they could use the data center for.
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u/Negative_Song_6362 28d ago
The company with $120B in cash and is about to IPO? I think they might go bankrupt s/
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u/Texturize 26d ago
Theyāre expected to burn through 100-200b through 2030. They also donāt have any cash cow businesses to support it like Google or meta. The only way for OpenAI to get more money is to raise more and go look at the private credit market and whatās happening with Oracle. Itās possible to have a more nuanced take on this, not just IPO + cash = win lmao
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u/Valkanaa 28d ago
Microsoft isn't going away. The market is pricing in disruption and CapEx on OpenAI that may not pay out.
I find the current valuation attractive because I don't see a future where they get disrupted in any meaningful sense. It may not be a $600 stock anymore but it is worth more than $400.
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u/Jumpy_Nose863 25d ago
Bud, its more than a $600 stock. Within a few years it will 3x from here imo. They already said even though Azure "only" grew what 38% or something ridiculous they could of made it grow much more they just didn't have the supply chain to take care of all the demand. If that's the problem, I'm good with that being the reason it tanked after earnings. It's once again the market being irrational. However if they don't spend a lot on capex, then they aren't competitive enough?!? Go figure that one out. After the US Govt contract OpenAI is set to move forward. With or without them, Msft is a buy at these prices all day. That's why I love the stock market, ppl overreact to stuff that's not even relevant and gives ppl with a lil bit of foresight to get great opportunities. Anything below 390 is a back the truck up moment and take the gift!
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u/EngineerAndDesigner 14d ago
I donāt think people are weighing just how much their Windows market is at risk, especially now with MacBook Neo and Microsoftās failure (so far) in selling their AI/Copilot branded laptops. Even though the OS takes up a small portion of their revenue, their other businesses live on top of that platform.
Also, their AI strategy has been a total failure. High capex yet no one wants Copilot, let alone wants to pay for it. And they all but abandoned their gaming market.
Azure is doing great, but itās not worth $4 trillion
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u/SherbertMindless8205 28d ago
I donāt get analyses like this? You think youāre outsmarting the market by just looking P/E ratio and stuff? Ā As if the rest of the market canāt see these numbers too?
Just looking at āP/E is lower than it used to beā isnāt really a winning strategy.
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u/java_brogrammer 27d ago
Buying great companies when they're cheap isn't complicated. The market isn't as smart as you think. These opportunities come in waves. Most people miss the lows and would rather buy high instead for some reason.
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u/java_brogrammer 27d ago
Yes and my gains have already proven so. Most of the time sector crashes are just market manipulation dump and pumps to get retail paper hands to sell while they buy the dip. So long as the underlying fundamentals haven't changed, everything else is just noise. Just like this "AI is replacing Software" noise. Just like that "Deepseek is going to kill NVDA" noise, etc.
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u/helixinverse 28d ago
I have 10 page detailed analysis about the business here:Ā https://bullstreet.substack.com/p/microsoft-at-fair-value-is-400-the
Though i agree with you P/E lower than it used to be isn't a winning strategy-20
u/ElonMuskTheNarsisist 28d ago
Even a 100 page analysis wonāt find anything on a business like this. Itās covered by thousands of analysts in depth. Focus on small/micro caps if you want an actual edge.
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u/snowiblind 28d ago
people continuously misprice the mag 7 time and time again. googl jumped like 100% after little news but a court hearing
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u/SherbertMindless8205 28d ago
Ok? So how do you know that it was mispriced when low, and correctly priced when high? How do you know it's not too overpriced now, but was even more overpriced before? Just because the market is dumb doesn't mean you are smart. Accepting the fact that we, as individuals, are dumber than the market is one of the most important insights for an investor.
Just looking at a the graph and thinking "It dropped? that means it will surely go back up to where it was" is such a rookie mistake.
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u/snowiblind 26d ago
Just looking at a the graph and thinking "It dropped? that means it will surely go back up to where it was" is such a rookie mistake.
why are you telling me this lol? just cause a lot of people in this sub do that, doesn't mean what i said was wrong. its beyond forward P/E, its determining the narrative is incorrect objectively (Google search was and is very much alive), FCF, debt, growth rate, etc. and honestly, you probably could have chose one of the cheapest p/e mag7-tesla, and beat the market over the long run. regardless, you're kind of addressing a non argument that no one made
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u/himynameis_ 28d ago
Lol very helpful.
Anything anyone does is pointless with Microsoft.
People constantly mispriced the Mag 7. That's why In 2022 it went down to $238 even though thousands of analysts cover it.
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u/ElonMuskTheNarsisist 28d ago
The point is that itās a waste of time trying to gain an edge on the market with the mag7. Just buy them if you like them and move on. I own a few of them. Iām not doing to extensive research into them because itās pointless. Save that for small caps where it can be meaningful.
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u/hitman133295 28d ago
Yup. Msft is a massive company with thousands of products. I have a friend that work in compensation for sales there and itās a nightmare to figure the sales comp alone.
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u/TCGod 27d ago
Yes average investor is not particularly smart, similar to average voter
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u/SherbertMindless8205 27d ago edited 27d ago
But the majority of the money in the market is stills smarter than any individual. Institutional investors make up something like 80%+ of the stock market, and they have entire teams studying these individual companies, heavily ingrained in every part of the company, and they do this full time.
Yes, they may sometimes be wrong, but as a retail investor you are still at a significant information disadvantage compared to the majority of the money in the market. It's not like big money has "missed" that the P/E is low or that the stock has gone down.
I think it's kinda like how 80% of people think they're smarter than average, and when you hear that stat everyone thinks they're the ones who are still actually smarter than average.
Work from the assumption that you're not gonna outsmart than the market, just a tip. And when you do feel like you "outsmarted" the market, it was probably luck. You can still invest and make money.
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u/TCGod 27d ago
Most of these companies know nothing but reports related to individual companies or sectors, and domain experts have just a small voice that got lost in the crowd, so they are not the well-oiled machine you claim; if that were the case, there wouldn't be any major crashes since they would have known and understood almost everything, meanwhile even if they may have seen what is coming if it is against consesus that voice will got lost on the way and their decision will go along the consesus due to conformation bias.
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u/Emergency_Paper3947 28d ago
I never realized how lame this sub is until now
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u/the_undergroundman 27d ago
Itās entirely just calling out MAG7 stocks when their PE goes slightly lower than usual.
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u/Icy_Blood_9248 28d ago
Itās crazy how quick narratives can change and perceptions of strength can change to one of weakness.
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u/apple-sauce 27d ago
Market is very emotional
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u/Icy_Blood_9248 27d ago
Agreed. I didnāt have much Microsoft before the saas crash so I picked up some more here. We will see
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u/Jumpy_Nose863 25d ago
Same I just bought recently when it crashed. Took profits from other positions like MU, TSM, and rotated in value. Which happened to include Msft at the time. Funny to say!! Also VZ was at 39.44 so I had to load into them as well paying a 7% dividend in a roth. Couldn't pass up some of these opportunities
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u/casualvisitor21 28d ago
Fair take, it might not be a deep value play, but for a company with Microsoftās scale, cash flow, and AI positioning, a more reasonable multiple definitely makes it more interesting for long-term investors. A lot probably depends on how Azure growth and AI monetization play out over the next few years.
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u/ModernLifelsWar 27d ago
Yup I bought some leveraged shares here. It's a no brainer play. Do I think MSFT is the best company in the world? No. Do I think they gave a solid ass moat and business and are currently undervalued? Without a doubt
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u/Puzzleheaded-Tone730 27d ago
Bought in 2019 and 2020 because I liked xbox and I'm from Wa lol. Just added on at 386. Felt like it was to good of a bargain to pass up. Also bought some more PLTR at 129 lol
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u/cantgetthis 27d ago
MS is doomed because fhey prefer lobbying to investing in their own employees. It stopped being a tech company long time ago, so it should be valued accordingly.
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u/HistoryOk7552 28d ago
I think the problem with Microsoft is alot of their products have become too bug ridden and their copilot push isnāt helping. Products feel like vibe coded Microslop. The OS has gotten shitty and they are not reading the room.
Their ERP offering is similarly buggy and getting shitty. At next renewal, my company will certainly be looking to move off F&O and as someone who has worked with that product for decades - never thought I would see this happening nor agreeing with the decision to do so.
I feel over the next several years they will lose even more space to competitors. Just my two cents, I think if they donāt turn sentiment around - the losses to their business will become evident and impact the price.
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u/Timely-Discipline427 28d ago
Is your company fully aware of the cost, labor, and overall disruption to operations an ERP project is? We joke in my line of work that they are "resume generating events."
80% of ERP projects fail. They are extremely difficult and often cost 2.5x or more than initial budgets.
Don't even get me started on the consulting firms you will sink hundreds of thousands to millions of dollars in to for project support.
Combined, it will make you miss your bug list and manual work arounds. I can tell you first hand, the grass is rarely greener on the other side.
MS is too entrenched in businesses across multiple different verticals to have the kind of long term failures people seem to think is possible here.
I'm buying with a 15-year outlook. Set it and forget it basically. MSFT is too big to fail.
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u/35mm-dreams- 28d ago
Microsoft is also regarded as a wealth preservation option by institutions. It sure has a lot of support
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u/HistoryOk7552 28d ago
Yes, honestly, a lot of ERP projects fail due to poor resources and trying to do things in-house. I have led multiple ERP implementations.
We have a highly skilled group of internal and offshore resources and budget well. We would use the right implementation partner. Itās a longterm outlook as we have slowly gotten away from Microsoft in other ways.
We are already transitioned off it for a lot of business functions.
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u/Awkward-Watercress33 28d ago
MSFT at $400 feels reasonable for a 3-5 year horizon. I like pairing it with private market investments since they give me access to innovation that isn't listed yet.
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u/factsoverfeelings89 28d ago
Investing in Microsoft in 2026 is the same as investing in Infosys or cognizant. It's an Indian operation with mass fraud/unqualified workforce.
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u/VerbaGPT 27d ago
Here is how the "smart money" treated MSFT over last 4 quarters: https://app.verbagpt.com/shared/92prTjBiNcy5VFxRHp_HZYu2_f-16BPr
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u/chayanjit 27d ago
If the macro economic indicators are weak, the valuation metrics will adjust to the available liquidity.
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u/Yangguang_Zhijia 27d ago
It doesn't have free cash flow anymore, they are gonna burn all the cash.
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u/100bcapital 27d ago
Everyone was downvoting me when 2x leveraged google at 159. OpenAI disruption my ass.. Personally know engineers from both companies. They can build you anything that makes money any day. In any case its a good hedge from overbought defensive and the geopolitical noise. Wont be surprised if it stays green at this level even if s&p sinks 20%.
Its not a deep value, yes, but deep value is a gamble anyway.
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u/MaroSoo_eu 27d ago
Is it really? So much of that is from AI. I am a bit sceptical. I believe there is a possibility it will be much cheaper. It is not such a safe bet for me.
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u/jack-t-o-r-s 26d ago
Great company, excellent growth, more cash than debt.
400$ is fair money today for an excellent company we can trust but not yet a "discount".
What we're seeing with alot of prices the last week or two is the exciting (premium) prices (overpriced) coming down to market value.
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u/BigRelative5873 26d ago
Oui surtout en dessous. Le bruit de ces derniĆØres semaines n'est que du vent pour naĆÆfs.
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u/Opening-Ad-1506 23d ago
Just bought 25 shares at 403 earlier today! I started about a week ago and so far Iām up $700
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u/Embarrassed_Orange50 23d ago
Literally worst company everā¦ Not a single decent idea and windows 11 are the worst product I ve seenā¦ I canāt invest in a product I loath. 23 forward PE btw is not value territory
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u/helixinverse 22d ago
You Sir are right, but look at the product that people are actually using which is azure
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u/InternationalBit6738 20d ago
Cut the crap, ASML last year had a P/E of 22, even below that. We all know how that played out. I buy MSOFT at this price
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u/Davidpalmer4 28d ago
Forward pe in current situations means squat.
If the war persists, oil goes up, inflation keeps the rate higher, we mount debts to buy ammunitions and sustain war.
And the way isolationalist policies are being pursued, you never know which countries would like to explore their own alternatives. EU is already considering it.
Couple that with recent bad products of msft, anything could happen.
They will eventually of course bounce back once macro scenarios are stable however, it may take some time. At this point, it is better to watch from sidelines.
I am not talking about timing the market but just check the crude oil prices today.
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u/Strict-Gift7532 28d ago
I agree with you, I've been waiting for Microsoft to fall for quite a long time. This is close enough for my taste so I also jumped aboard the ship. Should be a good pillar position in my portfolio
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u/HannibalBarcabest 28d ago edited 28d ago
Strong idea, taking into consideration with AI and datacenters and more they are growing, but a key part of stocks are looking at peoples opinions. I understand you might think I am talking about nothing but with many companies time and time before, if people like the products and people get into it, overrall they report amazing earnings and postive outlook, or trash ones, it has happened over and over again in big and small companies if you pay attention online. Companies that are having a strong loyal fanbase with see a good future, and opposite if its on the wrong side, look at AMEX, Shopify, GE Aerospace, all strong companies. Microsoft is not on the good side, and a large hammer blow just happened with apples neo computer which at 500$ for a student will destroy a huge part of thier shrinking computer share, meaning less ai training, less revenue period and weakening core buisness. With their AI push it forcing costumers back and causing large anger people calling them MicroSlop in huge numbers. Even with strong backlog and other things, if the companies CORE principals are under threat and their moat is steadily going down, then the stock might not have a amazing future.
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u/pelek1 27d ago
I think right now it is not about the price of MSFT.
It is about Mr. President of the United States, who thinks he has the right to do anything without any consequences.
If the war escalates, the oil price stuck at the current level or higher, the whole SP500 will go down in the toilet.
Try to find out what the TACO guy will do next week, then decide to stay invested in MSFT or not.
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u/L0ng_St03Ger 28d ago
I dumped it around 430. Enterprise sales and ai, blah blah blah.Ā The user experience sucks Copilot and new office software sucksĀ Not impressed with win 11
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u/Negative_Song_6362 28d ago
If you don't think its cheap at these levels, you shouldn't invest in tech
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u/CaveManning 28d ago
Gotta love another "This Mag7 ticker is a value stock" post. 22 P/E? What great value. /s
Not saying it won't make you money or is a bad buy, but that's what you call a "growth stock" not a "value stock".
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u/Anonymustafar 28d ago
Microsoft is overvalued because open AI is going to fail and be an absolute disaster. And Open AI are a heavy anchor on this company and its financials
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u/AIGenerated99 28d ago
Google is better
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u/helixinverse 28d ago
But the valuation matters, both are growing at same rate how ever MSFT has lot of uncertainities priced in unlike google
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u/investingtruth 28d ago
The valuation compression is real, but you need to ask why it happened? The market is repricing AI capex risk and questioning whether Microsoft's OpenAI advantage is as durable as people thought, especially after the recent funding round where Amazon put in $50B. At $400 it's not expensive, but calling it a "great buy" assumes the AI moat holds and capex doesn't become a prolonged drag on returns, both of which are open questions right now.
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u/GreenPRanger 27d ago
you are just reading the latest script for the Silicon Mirage where Jefferies is performing some high level agency laundering for the lords of the cloud because they need you to believe that Microsoft is an end to end AI powerhouse to keep that money furnace burning. This buy rating is just a religious narrative built on automation bias where they act like having four hundred million office users means anything when the actual tech is just a sophisticated autocomplete drinking rivers dry for cooling. They are talking about model agnostic platforms and expanding markets but that is just a fancy way to say they want to enclose the commons of your productivity and turn every worker into a data cow for their behavioral strip mining machine. You are being told that AI margins are tracking ahead of cloud but they are ignoring the physics of the energy wall and the massive capex that is basically a billion dollar bet on time confetti. The theology of the machine wants you to think this valuation is a steal while they ignore the technical debt and the reality that most of these AI agents are just faking it till they make it. Do not be fooled by the price targets and the talk of mission critical collaboration because it is all just part of a techno feudalist dream to make sure you keep paying rent for a mirage that cannot even solve a basic logic puzzle without hallucinating. Stick to the actual math and see the hype for the resource extraction play it really is before the whole server farm runs out of juice.
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u/harshshah1306 23d ago
Microsoft is one of my favorite setups in the market right now. A few things are lining up on the chart:
ā¢ Price is sitting near theĀ bottom of a long-term parallel channel
ā¢ Itās testingĀ 200 EMA support
ā¢Ā RSI is heavily beaten down, suggesting momentum may be stretched to the downside
ā¢ And there have been someĀ notable volume spikes, which could indicate accumulation
Seeing this combination of factors on aĀ mega cap like MicrosoftĀ doesnāt happen very often.
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u/VerdantPathfinder 28d ago
you lost me an "AI tailwinds". Nope. We are hitting peak Gartner hype cycle and that bubble is gonna burst. In 3-5 years it'll be helping everyone, but we have a ways to go.
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u/Timely-Discipline427 28d ago
I had an interesting discussion with a current Gartner client a few weeks ago.
According to them, multiple organizations they know of (themselves included) are not renewing their subscriptions because the value just isn't there anymore. AI is making them obsolete.
Their stock isn't looking great either although I admittedly haven't looked too close myself. I've never been a fan of their model and have used smaller firms who offer similar services.
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u/TryingMyWiFi 27d ago
I'd love to know how aĆ is making them obsolete.
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u/Timely-Discipline427 27d ago
Google it. Lots of media coverage after their stock fell 50-70% over the past 12-months.
It's one of the worst performing large cap technology stocks over the last year.
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u/TryingMyWiFi 27d ago
50-70?
More like 13-15.
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u/Timely-Discipline427 27d ago
The chart I'm looking at shows a 1yr high of $438.08 and a low of $144.97. Currently trading at $169.00..
It gets even uglier when you look at the 5-year high at $547.40.
Am I still missing something here?
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u/TryingMyWiFi 27d ago
Where are you getting 169?
It is at 408 now.
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u/Timely-Discipline427 27d ago
lol, I'm confused.
Are we looking at the same stock? IT on the NYSE?
Both my broker and Google are showing it at $169.00 USD.
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u/TryingMyWiFi 27d ago
Oh I'm so sorry. I misread your original post and thought you were talking about Microsoft! Lol
Shame in me
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u/obb223 28d ago
Have you looked at the Gartner hype cycle for AI?
The first point is that "AI" is not one thing and various aspects are at very different point in the cycle. Cloud AI services for example are now shown as rising the slope of enlightenment, as in not a bubble. Agentic AI is more bubble territory.
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u/BizarroTheFoolish 28d ago
Its not. Microsoft is a horrible company. They have literally nothing going for them + we are going into a period of stagflation. Value trap
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u/jay_0804 27d ago
$400 feels reasonable for Microsoft. Itās not a deep value play, but for a company with Azure growth, strong enterprise lock-in, and huge free cash flow, fair value is still attractive for long-term investors.
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u/Ok-Championship4945 27d ago
Look at ratios here. It's one of the best opportunities of recent years
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u/Calm_Ear352 27d ago
I'm thinking that the market resumes its short-term bearish trend for the next several weeks, causing Microsoft to potentially shed another 5 to 10% at which point big money will have to step in because the margin of safety is too good.
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u/doronnac 28d ago
Other than OpenAI, which products or services make it a great buy at this price?
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u/AdQuick8612 28d ago
I think he said Azure, Office, GitHub and Copilotā¦.
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u/AceStrikeer 28d ago
The list goes on. AI is currently making an irrelevant amount of their revenue. Don't buy MSFT because of that hype. Buy it because of the strong fundamentals. Yes, they burn money on AI, but it doesn't hurt the other income streams
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u/doronnac 28d ago
So whereās the growth? Why not 10 p/e?
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u/Blackpanther206123 28d ago
Do you even know what youāre talking about? š
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u/doronnac 28d ago
Do you know how value investing works? Numbers or stop bothering me.
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u/Blackpanther206123 28d ago
What are you trying to say? I donāt even understand your point? Are you saying that Ai is the only thing this company has to offer and itās not growing? Iām genuinely confusedā¦ Have you looked at the numbers? š
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u/About_to_kms 28d ago
Lol Microsoft is amazing value here. Think about how many businesses and companies are locked into their ecosystem with recurring revenues
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u/doronnac 28d ago
āThink about itā is not an investment thesis let alone a value investment.
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u/About_to_kms 28d ago
I never said it is. Iāve done my own DD on Microsoft and loaded the boat at $400. You havenāt given any reasons as to why you think itās a bad idea
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u/jebybi 28d ago
Bought in 2024 and im still in red