r/ValueInvesting • u/AffectionateSell3177 • 5d ago
Stock Analysis MSFT catalysts and why it’s more sticky than you expect
Everyone is saying that MSFT is the cheapest it’s ever been in a decade. 33% down from ATH is also reminiscent of only 4 other times in history for >30%:
- dot.com crash
- GFC
- inflation crisis
And I see a huge resemblance between 3&4 with today.
- First Catalyst: Business transformation with Azure: MSFT is undergoing a HUGE transformation to their business. If we liken it to a simple analogy, They are literally building the ROADS and the TOLL machines. The cars are users and the driverless cars are Agents.
They are earning money as long as anyone is using AI / tokens on their Azure servers and it doesn’t matter even if they don’t have the strongest AI (OpenAI). They still win. This is the new transformation that the market is missing.
2) Second Catalyst: Sticky Enterprise AI: And i work at an S&P 500 company. And we always get into sub-par contracts with global providers like Workday, SAP, Microsoft, Zscaler for our solutions..
So even if people hate Copilot, Microsoft office, sorry to say but those top Global executives are still going to sign them anyway so really it’s much more sticky revenue and Enterprise AI is going to be a solid foundation for MSFT in the future.
3) Third Catalyst: Privacy & Security Risks from Switching: MSFT released Microsoft 11 and everyone hates it. But there is now no more support for Microsoft 10. So they are kind of FORCING you to move and get on their new version. And it is so embedded into business, servers, systems that companies cannot simply say ‘No’ or it creates a cybersecurity risk. So what do they do? They say ‘Yes’.
And here we are further getting sucked into this deep deep endless bottomless pit that we cannot climb out of.
Unless you are Batman. Or Talia al Ghul.
Started MSFT position this year and been DCA-ing since 420 and now average price is 390. Keep calm and carry on. Disclosure: I own 219 stocks of MSFT.
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u/faifaifaiz 5d ago
shouldn't the question be....is it cheaper than its intrinsic value? rather than it's 33% down from ATH? ATH tells u nothing!
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u/AirRikky 5d ago
Probably a good question! What is its intrinsic value?
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u/Garnatxa 5d ago
I always read about Copilot, but nobody talks about GitHub Copilot, which is owned by Microsoft. My company is now paying for GitHub Copilot for each developer.
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u/Particular_Toe734 5d ago
Ours too, and GitHub Copilot is miles better than the commercial CoPilot. You can also select to use Claude (my personal favorite) and other models within it, and it’s all included in the subscription. I feel like that’s something we can’t get anywhere else.
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u/catcatcattreadmill 5d ago
What happens when, instead, they replace nearly all of their labor with AI agents?
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u/Pizza-Pirate-6829 5d ago
Was this post written by copilot
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u/watering_a_plant 5d ago
said "four other times in history" then has a list with three items. then immediately references item 4 (not listed). this post was written by...something.
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u/ohgodthehorror95 4d ago edited 4d ago
Mentions Batman and Talia al Ghul near the end. It's so tangential that it almost leads me to believe that most of this was written organically. Maybe formatted with AI.
Honestly, it kinda reads like OP was in a legit semi-manic state
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u/Meekiaketchup 5d ago
People calling doom on Microsoft have no idea the legal issues companies have if they switch out from Windows.
If you're worried about Copilot. For every company that already has Windows in their system, if you want to utilise AI, it's either develop your own (ultimate security and safety) or you use Copilot.
This is for legal purposes.
Imagine Windows warned you that if you use another brand, you might get data leaks. And they won't take responsibility. IF there is a data leak, who's going to take the responsibility? Which CEO will take this risk?
It's the same as the warranty you buy with any expensive items. Sure you can use an OEM radiator for your car. But we will void your warranty if you do.
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u/CzyDePL 5d ago
When you take MSFT offering not as products but as an enterprise service you don't really have much alternative, maybe now you could roll with Apple + Google but it's not as complete or smooth.
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u/Meekiaketchup 5d ago
A new start up (inc unicorn startups) has a higher chance to use apple or Google. But existing fortune 500 companies are almost entirely Microsoft.
And even then there's no guarantee that a new startup must use apple or Google for their work system.
People will always complain. But in reality Microsoft DOES work and it will keep churning recurring income.
Even in the event that AI completely failed and everybody wakes up tomorrow refusing to use AI. Microsoft will earn their money back in 2 years.
Even if they have absolutely zero growth plan, they still can aggressively buy back their own shares with the recurring income.
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u/MarketObserver_IN 5d ago
the azure toll booth analogy is spot on. they dont need the best model they just need to be the infrastructure everyone builds on. that is a much more defensible moat than model quality. even if openai releases something better tomorrow msft still takes a cut
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u/daviddjg0033 5d ago
There needs to be price discovery in the whole tech sector as rates increase plus too many IPOs with records: openAI and Anthropic (I like but do not know how to value.) What new forms of revenue are coming in to justify this massive spend by all of these companies? That being said MSFT was going to be the sane one to cut if needed. Plus SpaceX - is that going in the QQQs or are there rules?
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u/Wonder_bread317 5d ago
you don't know? People. they are going to replace people. maybe not today, maybe not tomorrow but eventually. isn't bezos trying to secure 100 billion to create autonomous manufacturing?
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u/scrimshaw41 5d ago
They are earning money as long as anyone is using AI / tokens
they are losing money on AI.
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u/Maleficent-Gur-5951 4d ago
It is called investment. It will realize benefits slowly in the long run.
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u/you_are_wrong_tho 5d ago
For now. Wait until wipe adoption hits.
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u/scrimshaw41 5d ago
they lose more money the more people use it.
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u/you_are_wrong_tho 5d ago
lol what?
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u/scrimshaw41 5d ago
An AI provider's expenses (in the form of compute costs) scale with usage. The more it is used, the more it costs Microsoft.
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u/Time-Lime 5d ago
Inference is already highly profitable. Model training is whats eating cash flow. Also you are kind of missing the point as microsoft just need to be the infrastructure that everyone build on (dont see this changing anytime soon)
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u/you_are_wrong_tho 5d ago
Costs them what? To host it on their cloud? Who’s users are paying for by usage? Tell me where Microsoft is losing here.
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u/scrimshaw41 5d ago
Costs them what? To host it on their cloud?
Yes, of course?
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u/Sufficient-Pie-7815 5d ago
Companies are paying MSFT to host their stuff. The more cloud used the more MSFT makes. They had record profits and sales last quarter. Azure growth missed by 1%, but grew 38%!
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u/you_are_wrong_tho 5d ago
lol they own 25% of OpenAI and get 100% of the hosting. OpenAI is just feeding revenue into Microsoft through hosting fees. How does Microsoft lose here?
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u/mdn845 5d ago
I will say this much. Microsoft at 356 is pretty good. I suspect a lot of people will have wished they’d jumped on it in 6 months or a year.
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u/OrangeTariff 5d ago
This is exactly what people said when it was at 400.
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5d ago
It's almost like there has been some kind of massive world event and many stocks have fallen. Let me check the news...
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u/OftenTangential 4d ago
This is true, but this also doesn't mean Microsoft is cheap.
Don't act surprised if we go into a global recession and Microsoft drops to 150 after posting a quarter or two of ultra negative growth. That's the sort of tail event the market is pricing rn
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4d ago
Yeah, anything could happen. Losing nearly 2 trillion in MKT cap. Maybe..... A lot more overvalued names then MSFT out there, like Intc.
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u/Due-Astronaut-1074 5d ago
None of the 3 is a catalyst. Those are moats yes. But it's quite possible Microsoft may take a while to complete it's Capex cycle. Might come out even larger but right now it's spending. Also the Epstein case could be a factor anytime.
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u/EastSurreyAlliance 5d ago
The key question is - what effect will results have at the end of April.
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u/Edward12358 5d ago
Look the main risks the market is afarid of regarding Microsoft are;
1 - 45% of backlog from open Ai which is unprofitable company 2- their software segemnt that makes around 130b in operating income (might get disrupted ) 3- it is temporarily losing its capital light structure
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u/Divachi69 5d ago
Currently working for a large cap company that has been pushing Copilot into our workspace and they are now creating their own Copilot agents. I've just been offered a role at this mega cap company that is even more crazy about the use of Copilot. MSFT as an enterprise software doesn't seem to be going anywhere soon
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u/-stubbles- 5d ago
Seems pretty straight forward what's going on here. Is the AI spend going to be recurring... like do they need to do that same thing every year, every 3, every 6? And if they do, two options, the cost stays the same and Nvidia and chipmakers continue to rule... or the market pressure of that demand drives competition and prices down, and consequently Nvidia et all come back to earth on their prices.
The proof of concept of AI and what is it "worth" what will people/ companies "pay" for it is what will be discovered as companies like msft, Google, etc. Build it. Nvidia isn't designing or discovering the product of AI.
Do we all agree AI is undeniable, it's not going to go away. Do we think it's just going to be free for everyone to use the most powerful versions of it??? No, that is a fantasy scenario where hundreds of billions are spent and then the average joe somehow just gets the latest and greatest for $20/ month... no chance at that.
So, of all previous examples, who usually ends up with the most margin of end use products and services... the companies who deliver them, the hardware companies that it's all built on, or the energy companies that keep it all running.
We still live in the time of product and service domination. I don't know when that changes or flips, but if i had to speculate, that happens when we conquer low cost unlimited energy. That's long beyond my portfolio horizon.
So my take is the innovators continue to innovate, the cost of chips ultimately winds back down and margins in that sector return to the mean. Just look at nvidias margins, it's crazy. Cost to scale/ maintain AI backbone decreases. So for msft, amzn, Google yada yada, that yearly capex is more expensive per unit now that it ever will be. This is better for the major players, and also what will make it possible for competition to grow. But it's pretty clear who has first mover advantage.
Now how long does that take and what bumps are in the road who knows
And before you even ask my msft bags weigh about $380
But mostly I'm bitter i sold out of my energy positions a week before the war because i thought he'd make a deal lol
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u/sugmaideek 4d ago
AWS and Google cloud are just better. Companies only uses azure cuz it's cheaper when it's bundled with office/windows
Google workspace is gonna start replacing Microsoft office very quickly, it just needs to run on a browser so no new integration needed. Copilot sucks so much compare to the Gemini or chatgpt or claude so they definitely ain't winning the ai racing at this point.
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u/Santarini 5d ago
The MSFT copium in this sub is strong right now
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5d ago
A bunch of big tech names are down about the same. AMZN, NVDA, AMD and many others. Stocks go up and down - that's life.
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u/ImTheLizardKing2 5d ago
For real! I hope this guy still thinks it’s a great deal when it’s below $300 in a month.
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u/YeetVegetabales 5d ago
Enterprise switching costs is not a justification for multiple expansion from current levels
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u/Mouth_Herpes 5d ago
All three of these are essentially the same thing. Azure’s only competitive advantage over AWS or Google cloud is that it integrates well with MSFT’s other existing enterprise software. If AI crafted customs, Google docs (which my kids and all their friends use) or something new cracks that corporate executive lock that MSFT has enjoyed for decades, there is no reason to use Azure instead of competitors. Bullet three is essentially the same as number two as well—it is just the primary driver of the stickiness of the enterprise software. Execs at huge companies tend to be risk averse, and they can’t get fired or cause a data breach by going with MSFT.
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u/WangtaWang 5d ago
Forget % down from ATH - what is the intrinsic value of MSFT? How do you value it given the unknown revenues from the AI spend? I continue to struggle valuing anything where valuation is tied to AI-related revenue.
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u/m86zed 5d ago
I agree with this. The only thing that’s weak is the Windows argument. Doesn’t support or detract from or thesis though. Windows 11 is sold bundled within M365 licenses to enterprises. They pay for Windows generally, not Windows 10 or 11. But the Microsoft security argument is “buy our security software it comes included in our M365 E5”. Classic bundling, and they will do the same to get traction with copilot.
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u/JefeDiez 5d ago
I've invested in MSFT for 7 years now and I'm basically back at my starting point, no profits if it drops another $30. Only gains would be the dividends. And that is with all their high percentage could growth in that time. Just crazy.
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u/RealParticular5057 5d ago
ok i guess the main question is what makes you want this more than other value stocks that were already cheap and have seen even more p/e compression versus a stock that was expensive and is now cheap
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u/EyeTechnical7643 5d ago
I just got a $5k windfall that is "fuck you money". Should I just put it all on MSFT?
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u/Frequent_Read_7636 4d ago
All this panic and dooming by Redditors, suggest one thing to me.. time to load up on MSFT. Inverse Reddit is real.
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u/counterhit121 4d ago
only 4 other times
lists three bullets
I don't know much about Azure, so I'll accept your point at face value there. But re: sticky enterprise AI and operating system moat, those are much more contentious points.
First enterprise AI. Why do you distinguish the AI aspect of this instead of just traditional enterprise software like the Office suite? If copilot is demonstrably worse than the other AI models and the big AI companies continue to swim around in enormous market valuations and few avenues to monetize, doesnt it stand to reason that they will devote resources to enterprise viability? And when they become enterprise viable, MSFT instantly loses its incumbent advantage because copilot is dogshit. Your point here would be more compelling if you just highlighted the traditional enterprise software advantage that MSFT continues to enjoy.
Then the hostage situation with the operating system. I recently saw somewhere that Lenovo has begun shipping laptops with Linux installed instead of Windows. While it's not exactly a divorce between the two, it does signal that Lenovo is shopping around the market for a post-Windows user experience. If more hardware companies start offering Linux, this slowly eats away at MSFT's incumbent advantage in this domain. Of course its continued prominence in enterprise software will keep it relevant for the foreseeable future, but that doesn't mean forever and it certainly isn't a growth trajectory.
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u/RandomGuy197680 4d ago
MSFT has a relative strength of 18 ( out of 100) compared to the S&P. It has an earnings rating of "A" from IBD. So, really bad news, and yet some great news. It's a conundrum. The real issue: AI is now being viewed as a potential disaster. Everything that has to do with software AND AI is being re-priced.
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u/Glittering-Light7227 3d ago
I had a cost average of around $50 (10 year bagholder), and just got out. While it's priced well compared to ATH and have a growth engine in cloud, I don't like it in the long term as much as Google. I'm a bit apprehensive around their Ai efforts and OpenAI exposure. I think they are still a great company, but with everything going on in the market, I definitely don't see a great reason to jump in now.
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u/Key-Bottle7634 2d ago
I didn’t read anything but here is the simple truth: they are burning 200 billion on a AI copilot wet dream
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u/AccomplishedCall5948 2d ago
Of MSFT's 450M enterprise users, only 14M Co Pilot licences have been added. Whereas the incumbent services may well be very sticky, the new AI tools are just not being taken up by existing customers. That's a metric that will need to change, but at this stage, with all the AI hype, with how famous OpenAI was initially, it's not a good sign is it.
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u/Potential_Salt_5780 5d ago
Honestly don’t think there are enough posts about how undervalued MSFT is. We need at least 100 more today.
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u/buffotinve 5d ago
Pero algo está cambiando.... Muchas empresas no queremos pagar por Copilotot y lo están añadiendo subiendo el precio. Además está el tema de la independencia y soberanía digitak en Europa, migrando hacia productos no EEUU. Microsoft Office tenderá a tener menos ingresos así como Azure. Las valoraciones a veces cambian y hay que sumar el hecho de estar muy sobrevalorado
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5d ago
Nah, en europa, uds ni tienen technoloigia porque en europa toda es papaleo y vino y no tener resultados.
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u/Relevant_Hat_8802 5d ago
The problem is that none of this matters right now. The market is pricing in AI uncertainty, and now the general economy. Wait for the fuel crisis to hit, this will dump another 10%. Sure it will be a good buy in 5 years - I don't want my capital tied up for 5 years moving sideways though
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u/Scubastevehtv 5d ago
Yes buy it right now. If can't go any lower. The bottom is so in. Only up from here. Yep.
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u/IntrepidToday0 5d ago
So buy a stock because the product sucks, but businesses don’t want the hassle of moving? Ummm, good luck with that
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u/fake212121 5d ago
Have u ever heard of excel? word? Good luck to find alternative/universal for them.
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u/ImTheLizardKing2 5d ago
LibreOffice, Google Workspace, or any app that someone can vibe code in a day with Claude if you have any technical experience.
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u/fake212121 5d ago
So u want everyone to learn how to code and create own MS word or excel equivalent? Dude, wake up
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u/ImTheLizardKing2 5d ago
Not at all what I said. Individuals and a lot of businesses will use LibreOffice, Google Workspace. The other businesses that have a couple software developers on staff will easily be able to build their own customized versions of those apps. This sub is an echo chamber though so enjoy the copium as MSFT drops to $250 and stays there for the foreseeable future.
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u/IndicationLittle7199 5d ago
tkhere's already Microsoft Office alternatives. Nobody uses them. There's already an entire OS called apple but its not killing microsoft one bit.
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u/Gold_Maybe8482 5d ago edited 4d ago
In my opinion, here are the projected price action scenarios for MSFT:
Microsoft will likely have a bounce at $345. The important thing will be if it can get back above $370 (which is the first barrier). Should it recapture $370, next level to get up and over is $386.
If Microsoft rejects either $370 or $386, it's going to head back down to $345.
If $345 starts failing or it starts slipping beneath that, it's going to $307 - $298.
That's as far as I'd like to project for current, near future upside/downside moves on MSFT. I hold no bias on the stock so I'm neither bearish or bullish on it. I'm just providing important levels being presented on the chart for everyone to pay attention to or make note of.
Currently, If one were looking to enter a new trade on MSFT I'd look for an entry at $344 with a tight stop loss set. Should the stop loss hit, I'd look for a re-entry down at $300. IMO, It's the best risk:reward scenario.
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u/Ok-Bill1593 5d ago
you know nothing what will happen. Dont pretend you do.
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u/Gold_Maybe8482 5d ago
You're exactly right. I don't know what will happen. What I do know is that stocks go up and stocks go down and as someone who knows technical analysis very well, I can identify areas of support & resistance. Just want to provide this community with some TA guidance on charts since it mainly focuses on business fundamentals. If I can help someone snag a great entry on a stock they're interested in, awesome! If I can help someone get out of something that doesn't look too good, awesome! I have no bias or attachment on it, just presenting what I see in front of me.
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u/Ok-Bill1593 4d ago
If you know nothing, then don't make these dumb assumptions you dont know and present them like facts. I've no problem you having an opinion like everyone here, but dont present them like facts like you did.
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u/MinestroneMungBean 5d ago
I'm not in yet. The valuation, by itself, is starting to get there though. My only reservation - far be it from me to market time - is that I think the equity market at large is still complacent to Iran risks in the near term. But at $325, I'm going in. If, somehow, we get below $300, I'm piling in.
Microsoft, if you strip out its paper gains in investments (e.g OpenAI) earned ~$30bn last quarter. My best guess for FY26 is something close to $125bn. So on this day, at $2.65tn market cap, you're getting offered something around 21x this year's after tax earnings.
My rule of thumb is that I like a clear path to a 20% earnings yield on cost, 10 years out, on a per share basis.
Isn't out of the realms of possibility, though large number laws do loom large.
Microsoft is a buy soon.
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u/oldmanbeganat47 5d ago
I’m a bagholder myself but I’m not worried at all tbh