Microsoft Corporation (MSFT)
Valuation Overview•Is Microsoft Corporation Overvalued or Undervalued?
Trading at a discount across both intrinsic cash flow and relative peer multiples, indicating a strong margin of safety.
High-quality fundamentals with a strong composite quality score of 85/100, backed by robust profitability and solvency.
Analysts remain bullish, forecasting further upside expansion with consensus targets suggesting solid gains.
Verdict: High-quality compounder, with solvency as the only relative weakness.
Wall Street is highly bullish, projecting significant upside. However, capital return yields remain modest, anchored by a strong, well-covered dividend yield.
MSFT exhibits elite business quality, driven by exceptional capital efficiency and highly lucrative margins (highlighted by a massive 24.9% ROIC). This is supported by a highly conservative balance sheet featuring strong liquidity and pristine Altman Z safety.
The company demonstrates solid revenue growth (12.4% 3Y CAGR) paired with robust earnings compounding (12.2% EPS 3Y CAGR). This growth is supported by elite operational efficiency, sustaining an impressive 46.8% operating margin.
| Financial Metric | Trend (12Q) | Latest Qtr | 1Y Growth | 3Y CAGR | 5Y CAGR | 10Y CAGR |
|---|---|---|---|---|---|---|
| Revenue | $82.9B | +14.9% | +12.4% | +14.5% | +11.7% | |
| EBITDA | $48.6B | — | +18.5% | — | — | |
| Net Income | $31.8B | +15.5% | +11.9% | — | +23.6% | |
| EPS (Diluted) | $4.27 | +15.6% | +12.2% | +18.8% | +24.9% | |
| Free Cash Flow | $15.8B | -3.3% | +3.2% | +9.6% | — |
| Metric | TTM | 3Y Avg | 5Y Avg | 10Y Avg |
|---|---|---|---|---|
| Gross Margin | 68.3% | 69.2% | 69.0% | 67.2% |
| Operating Margin | 46.8% | 44.0% | 43.1% | 37.7% |
| Net Margin | 39.3% | 35.4% | 35.9% | 30.5% |
| FCF Margin | 22.9% | 27.9% | 30.0% | 30.1% |
| Quarter | EPS Est. | EPS Act. | Surprise | EPS | Rev |
|---|---|---|---|---|---|
| Q2'26Latest | $4.06 | $4.27 | +5.2% | ||
| Q1'26 | $3.90 | $4.14 | +6.2% | ||
| Q4'25 | $3.67 | $4.13 | +12.5% | ||
| Q3'25 | $3.37 | $3.65 | +8.3% | ||
| Q2'25 | $3.22 | $3.46 | +7.5% | ||
| Q1'25 | $3.15 | $3.23 | +2.5% | ||
| Q4'24 | $3.10 | $3.30 | +6.5% | ||
| Q3'24 | $2.93 | $2.95 | +0.7% |
Total return is -20.3% (1Y), lagging the benchmark by -45.2%
| Period | Total Return | vs S&P 500 (Alpha) | Dividend Contribution |
|---|---|---|---|
| YTD | -19.4% | -28.7% | — |
| 1Y | -20.3% | -45.2% | +0.7% |
| 3YCAGR | +4.8% | -14.8% | +2.9% |
| 5YCAGR | +8.7% | -3.9% | +5.7% |
| 10YCAGR | +23.2% | +9.5% | — |
The S&P 500 is at 31.3x trailing P/E — Expensive relative to historical averages.
Quick answers to common questions about Microsoft Corporation (MSFT) valuation, health, and returns.
Microsoft Corporation is estimated to be undervalued under our discounted cash flow framework. relative multiples indicate the stock is Cheap versus peers compared to industry peers. undervalued (implying +47.0% upside to DCF intrinsic value of $557.61)
Microsoft Corporation has multiple valuation anchors: DCF Intrinsic Value: $557.61 | Peer Relative Fair Value: $519.64 | Wall Street Analyst Target: $551.96 (implying +45.5% upside). A convergence of these signals offers higher conviction.
Microsoft Corporation displays excellent financial health with a composite quality score of 85/100, supported by a Altman Z-Score of 7.7 (safe zone), Piotroski F-Score of 6/9, Return on Invested Capital (ROIC) of 24.9%.
Microsoft Corporation pays a 0.9% dividend yield, covered by a 24% payout ratio with 21 years of growth, supplemented by a 0.7% buyback yield.
Microsoft Corporation's current growth trajectory is Accelerating. The company achieved +14.9% 1Y revenue growth and +15.6% 1Y EPS growth, compared to its 3Y revenue CAGR of +12.4%.
Wall Street consensus is Buy based on 82 analysts, beating EPS expectations in 100% of recent quarters with a 15-quarter streak. The consensus price target represents a +45.5% change from current levels.
Investment risks for Microsoft Corporation include: -34.2% 1-year max drawdown. Volatility risk is characterized by a beta of 0.88x.
No. These computations are purely quantitative model outputs for informational purposes. They do not account for qualitative management shifts or macro events. Always consult a licensed RIA before buying or selling shares.
Disclaimer: This page is for informational purposes only and does not constitute financial advice. All valuation models, scores, and target estimates are automated computations under stated assumptions and should not be relied upon as the sole basis for any investment decision.