Is Microsoft Stock Fairly Priced?

MSFT: Microsoft logo

Microsoft’s stock (NASDAQ: MSFT) has lost approximately 12% YTD as compared to the 5% drop in the S&P500 index over the same period. Further, at its current price of $297 per share, it is trading 20% below its fair value of $371 – Trefis’ estimate for Microsoft’s valuationThe technology giant topped the consensus estimates in the second quarter of FY2022 (FY July-June), with revenues increasing 20% y-o-y to $51.7 billion. Each of the three segments posted growth in the quarter – productivity and business processes (up 19%), intelligent cloud (up 26%), and more personal computing (up 15%). The productivity and business processes mainly benefited from growth in office commercial products & cloud services and LinkedIn revenues. Further, intelligent cloud revenues increased due to higher server products & cloud services revenue driven by Azure and other cloud services. On a similar note, more personal computing growth was because of higher Windows, search, and news advertising revenues. Overall, the net income improved 21% y-o-y to $18.8 billion. It was driven by revenue growth and a slight increase in the operating margin. 

The company’s total revenues increased 18% y-o-y to $168 billion in FY 2021, mainly driven by growth in the intelligent cloud segment (up 24% y-o-y). Further, its total revenues for the first half of FY2022 increased 21% to $97 billion. This was because of a 21% rise in the productivity and business processes unit, followed by a 28% jump in the intelligent cloud segment, and a 14% increase in the more personal computing division. All in all, the above growth in the top-line and improvement in operating margin from 42.1% to 43.8% translated into a cumulative six months net income of $3.93 billion – up 34% y-o-y.

Microsoft is likely to continue its growth momentum in the second half of FY2022. Notably, consensus estimates for third quarter revenues and earnings are $49.04 billion and $2.19 respectively. Overall, Microsoft revenues are expected to touch $199.3 billion in FY2022. Additionally, MSFT’s net income margin is likely to see a slight drop from the FY2021 levels, although growth in the top line will likely make up for the lost ground. It will likely result in a net income of $71.3 billion and an annual EPS of $9.44. This coupled with a P/E multiple of just above 39x will lead to the valuation of $371.

Relevant Articles
  1. Up Nearly 70% Since The Beginning Of 2023, Where Is Microsoft Stock Headed?
  2. Up 63% Since The Beginning Of 2023, How Will Microsoft Stock Trend After Q2 Earnings?
  3. Microsoft Stock Is Up 45% YTD And Outperformed The Consensus In Q1
  4. Microsoft Stock Outperformed The Expectations In Q4
  5. Microsoft Stock Is Fairly Priced At The Current Levels
  6. What To Expect From Microsoft Stock In Q3?

Here you’ll find our previous coverage of Microsoft stock, where you can track our view over time.

Check out how Microsoft Peers fare on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.


 Returns Apr 2022
MTD [1]
YTD [1]
Total [2]
 MSFT Return -4% -12% 378%
 S&P 500 Return 0% -5% 102%
 Trefis MS Portfolio Return 0% -8% 262%

[1] Month-to-date and year-to-date as of 4/7/2022
[2] Cumulative total returns since the end of 2016


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