Are You Overpaying For Microsoft Stock Versus Its Rivals?
Investors are paying a premium for Microsoft (MSFT), as the stock currently costs 29 times its earnings. That valuation sits higher than Alphabet, Amazon, or Salesforce, and of the four peers compared here, only Apple costs more. A premium price typically suggests the fastest growth in the group. Yet Alphabet trades at a much cheaper multiple while expanding its sales at a faster rate. So what are you paying the extra for at Microsoft, if not the fastest growth?
Microsoft Keeps More Of Its Sales As Operating Income
The premium buys a higher operating margin. Microsoft kept 46.8% of its revenue as operating profit over the past twelve months, compared with 33.1% for Alphabet. By contrast, Alphabet appears significantly cheaper at 17.3 times earnings, though that multiple is partly deflated by one-off gains. Over those twelve months, Alphabet revenue grew 20.1%, which is faster than Microsoft. So investors can buy faster growth for less, and what Microsoft offers instead is the highest margin in this group of five.
| MSFT | GOOGL | AMZN | AAPL | CRM | |
|---|---|---|---|---|---|
| Market Cap ($ Bil) | 3,880.9 | 4,232.1 | 2,736.0 | 4,989.2 | 186.8 |
| PE Ratio (LTM) | 29.0 | 17.3 | 20.2 | 38.7 | 19.3 |
| LTM Revenue Growth | 17.8% | 20.1% | 15.8% | 14.2% | 11.2% |
| LTM Operating Margin | 46.8% | 33.1% | 12.1% | 33.2% | 21.5% |
| 12M Stock Return | 0.6% | 42.1% | 14.6% | 33.2% | -4.2% |
A look at the other three peers confirms this dynamic. Salesforce costs less than Microsoft, while Amazon only appears cheaper partly due to one-off gains, though both are growing more slowly. Apple stands as the only stock priced higher, trading at 38.7 times earnings. Its revenue grew 14.2%, which is slower than Microsoft’s 17.8%. These five companies operate in fundamentally different sectors, however. Microsoft is classed as a systems software company, Amazon as a broadline retailer, Alphabet as an interactive media company, Apple as a hardware maker, and Salesforce as an application software company.
Consequently, part of the margin difference may come from what each business sells.
Microsoft Is Still Building Out Its Cloud Business
Cloud computing drove Microsoft’s fastest expansion during its latest reported quarter. Revenue for the Intelligent Cloud segment grew 32% in fiscal Q4 2026, and Azure inside it grew 43%. The company’s remaining divisions lagged well behind. Productivity and Business Processes grew 14%, while More Personal Computing shrank 4%.
Executives noted on a July 29, 2026 call that Microsoft added 88 data centers over the year, and that customer demand still exceeds available capacity. Management also expects capital spending to grow in fiscal 2027. Pouring more capital into meeting that demand could weigh on the high margin investors are currently paying for.
What Would Show Microsoft’s Margin Slipping?
If the operating margin falls by more than one point in fiscal 2027, it will have slipped further than executives expect. During the same call, management projected that operating margins for the full fiscal year should be down less than 1 point, even as the company invests to meet demand. Yet even that minor decline would break a long upward streak. Microsoft’s operating margin was 42% three years ago and 45% two years ago. The figure reached 46% a year ago and has continued to climb since.
Executives are also guiding for slightly lower growth. Management projected revenue growth of 16% to 17% in fiscal Q1 2027, down from the 18% growth recorded in its latest reported quarter, fiscal Q4 2026. Microsoft has not reported that first quarter yet: the company will publish those results after the market closes on Wednesday, October 28, 2026.
At today’s price, buyers are betting that Microsoft will sustain the highest operating margin in this group while it keeps building data centers. Three straight years of rising margins support that so far, though management expects a small decline in fiscal 2027. A decline of more than one point would be a steeper fall than management guided for, in the very margin investors are paying extra to own.
Does This Mean You Should Act On MSFT?
Our purpose is to inform you with unique data so you make the right investment decisions. That said, betting on a single stock is always risky, no matter which direction you choose.
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