Is There Any Upside For Microsoft Stock?
Microsoft (NASDAQ:MSFT) stock has seen a strong 16% increase over the past month, outperforming the S&P 500’s 6% gain. This surge is largely due to Microsoft’s impressive Q1 earnings beat and optimistic outlook, driven by its leadership in the cloud computing and AI, particularly with robust Azure growth.
But after its recent rise, is MSFT stock still a buy? Yes, we believe MSFT stock, currently trading around $460, presents an attractive buying opportunity. While its current valuation is high compared to the benchmark index, making it sensitive to adverse events, we see minimal cause for concern. Our conclusion is based on a comprehensive analysis of Microsoft’s current valuation against its historical operating performance and financial health. We’ve assessed Microsoft across key parameters: Growth, Profitability, Financial Stability, and Downturn Resilience. This analysis reveals a very strong operating performance and financial condition, which we’ll detail further below.
That said, if you seek upside with lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative — having outperformed the S&P 500 and generated returns exceeding 91% since its inception.
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How Does Microsoft’s Valuation Look vs. The S&P 500?
Going by what you pay per dollar of sales or profit, MSFT stock looks expensive compared to the broader market.
- Microsoft has a price-to-sales (P/S) ratio of 12.6 vs. a figure of 3.0 for the S&P 500
- Additionally, the company’s price-to-free cash flow (P/FCF) ratio is 26.0 compared to 20.5 for S&P 500
- And, it has a price-to-earnings (P/E) ratio of 35.1 vs. the benchmark’s 26.4
How Have Microsoft’s Revenues Grown Over Recent Years?
Microsoft’s Revenues have seen notable growth over recent years.
- Microsoft has seen its top line grow at an average rate of 12.0% over the last 3 years (vs. increase of 5.5% for S&P 500)
- Its revenues have grown 14.1% from $228 Bil to $262 Bil in the last 12 months (vs. growth of 5.5% for S&P 500)
- Also, its quarterly revenues grew 13.3% to $70 Bil in the most recent quarter from $62 Bil a year ago (vs. 4.8% improvement for S&P 500)
How Profitable Is Microsoft?
Microsoft’s profit margins are considerably higher than most companies in the Trefis coverage universe.
- Microsoft’s Operating Income over the last four quarters was $122 Bil, which represents a considerably high Operating Margin of 45.2% (vs. 13.2% for S&P 500)
- Microsoft’s Operating Cash Flow (OCF) over this period was $131 Bil, pointing to a considerably high OCF Margin of 48.4% (vs. 14.9% for S&P 500)
- For the last four-quarter period, Microsoft’s Net Income was $97 Bil – indicating a considerably high Net Income Margin of 35.8% (vs. 11.6% for S&P 500)
Does Microsoft Look Financially Stable?
Microsoft’s balance sheet looks very strong.
- Microsoft’s Debt figure was $61 Bil at the end of the most recent quarter, while its market capitalization is $3.4 Tril (as of 5/29/2025). This implies a very strong Debt-to-Equity Ratio of 1.8% (vs. 19.9% for S&P 500). [Note: A low Debt-to-Equity Ratio is desirable]
- Cash (including cash equivalents) makes up $80 Bil of the $563 Bil in Total Assets for Microsoft. This yields a strong Cash-to-Assets Ratio of 14.2% (vs. 13.8% for S&P 500)
How Resilient Is MSFT Stock During A Downturn?
MSFT stock has seen an impact that was slightly better than the benchmark S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on MSFT stock? Our dashboard How Low Can Microsoft Stock Go In A Market Crash? has a detailed analysis of how the stock performed during and after previous market crashes.
Inflation Shock (2022)
- MSFT stock fell 37.6% from a high of $343.11 on 19 November 2021 to $214.25 on 3 November 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 15 June 2023
- Since then, the stock has increased to a high of $467.56 on 7 July 2024 and currently trades at around $460
COVID-19 Pandemic (2020)
- MSFT stock fell 28.2% from a high of $188.70 on 10 February 2020 to $135.42 on 16 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 9 June 2020
Global Financial Crisis (2008)
- MSFT stock fell 59.1% from a high of $37.06 on 1 November 2007 to $15.15 on 9 March 2009, vs. a peak-to-trough decline of 56.8% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 6 November 2013
Putting All The Pieces Together: What It Means For MSFT Stock
In summary, Microsoft’s performance across the parameters detailed above are as follows:
- Growth: Very Strong
- Profitability: Extremely Strong
- Financial Stability: Extremely Strong
- Downturn Resilience: Neutral
- Overall: Very Strong
Microsoft has demonstrated strong performance across key financial metrics. While its current valuation appears high compared to the broader market, it aligns with Microsoft’s own historical performance. For instance, the current price-to-sales (P/S) ratio of 12.6x is consistent with its 12.4x average over the past four years. Similarly, the price-to-earnings (P/E) ratio of 35x is in line with the stock’s average P/E over the same period.
Looking ahead, strong growth in Azure is anticipated to drive further upside in valuation multiples. The company’s revenue growth over the next three years is projected to average in the low double-digits, compared to a 12% average over the last three years. Overall, despite its recent gains, we believe MSFT stock remains a compelling buy at current levels. In fact, we estimate Microsoft’s valuation to be $535 per share, reflecting over 15% upside potential.
However, it’s important to acknowledge potential risks. A slowdown in economic growth or a recession could lead to reduced corporate spending on infrastructure, potentially impacting Microsoft’s sales growth. Although MSFT stock has historically performed better than the benchmark index during economic downturns, a decline in its stock price during such events cannot be ruled out.
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