Should You Buy, Sell, or Hold Microsoft Stock?

August 27th, 2025 by Trefis Team
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Microsoft (NASDAQ: MSFT) has been a star performer this year, with its stock soaring 20%. This significantly outpaces the broader market, as the S&P 500 is up 10%, and its peers like Amazon have seen just a 4% gain, while Google is up less than 10%. This impressive performance is largely due to robust cloud growth and its continued momentum in AI integration. Microsoft’s strong position in the burgeoning AI boom has clearly been a major driver of investor confidence.

But at current levels of over $500, is MSFT stock still a buy? We believe it is. Our analysis of Microsoft, across key parameters such as Growth, Profitability, Financial Stability, and Downturn Resilience, reveals a company with a very strong operating performance and financial condition, as detailed below.

That being said, if you seek an upside with less volatility than holding an individual stock, consider the High Quality Portfolio. It has comfortably outperformed its benchmark—a combination of the S&P 500, Russell, and S&P MidCap indexes—and has achieved returns exceeding 91% since its inception.

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 very expensive compared to the broader market.

  • Microsoft has a price-to-sales (P/S) ratio of 13.3 vs. a figure of 3.3 for the S&P 500
  • Additionally, the company’s price-to-free cash flow (P/FCF) ratio is 52.2 compared to 21.6 for S&P 500
  • And, it has a price-to-earnings (P/E) ratio of 36.7 vs. the benchmark’s 24.0

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 12.5% over the last 3 years (vs. increase of 5.3% for S&P 500)
  • Its revenues have grown 14.9% from $245 Bil to $282 Bil in the last 12 months (vs. growth of 5.2% for S&P 500)
  • Also, its quarterly revenues grew 18.1% to $76 Bil in the most recent quarter from $65 Bil a year ago (vs. 6.0% 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 $129 Bil, which represents a considerably high Operating Margin of 45.6% (vs. 18.8% for S&P 500)
  • Microsoft’s Operating Cash Flow (OCF) over this period was $136 Bil, pointing to a considerably high OCF Margin of 48.3% (vs. 20.2% for S&P 500)
  • For the last four-quarter period, Microsoft’s Net Income was $102 Bil – indicating a considerably high Net Income Margin of 36.1% (vs. 12.8% 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 $3.7 Tril (as of 8/26/2025). This implies a very strong Debt-to-Equity Ratio of 1.6% (vs. 20.2% for S&P 500). [Note: A low Debt-to-Equity Ratio is desirable]
  • Cash (including cash equivalents) makes up $95 Bil of the $619 Bil in Total Assets for Microsoft.  This yields a strong Cash-to-Assets Ratio of 15.3% (vs. 7.0% 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 Will You Be Comfortable Buying Microsoft Stock? 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 $535.64 on 4 August 2025 and currently trades at around $500

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: Strong
• Profitability: Very Strong
• Financial Stability: Very Strong
• Downturn Resilience: Strong
• Overall: Strong

Overall, Microsoft stock has performed exceptionally well across all key parameters, which helps explain its premium valuation. Currently trading at around $500, the stock is at 37 times its trailing earnings, a marginal increase from its four-year average price-to-earnings ratio of 35.

However, we believe this premium is justified, and there’s potential for further expansion. This outlook is driven by robust sales growth in Azure and improving profitability, as evidenced by Microsoft’s operating margin expanding from 41.8% in 2023 to 45.2% now.

Of course, our assessment could be wrong, and investors may not be willing to pay an even higher premium for MSFT stock. Nonetheless, if you’re confident that AI growth will continue, and you have a 3-5 year investment horizon, Microsoft is likely to be a winning stock.

See, there always remains a meaningful risk when investing in a single, or just a handful, of stocks. Consider Trefis High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

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