Microsoft is a high-quality company with potential for digital economy and AI, but stock is already priced at 25x forward EPS.
Microsoft Corporation (NASDAQ:MSFT) is an incredibly successful company, led by a strong management team. It has a strong presence in the digital economy, with its tools and software being used in various ways, from office productivity to cloud storage. It is also looking to the future, with the development of AI, which has led to investors becoming increasingly excited about the company.
However, Microsoft has been over-earning and over-investing in recent years, and with the market returning to a more normalized environment, investors are questioning whether the current price of the stock is justified. Microsoft’s revenue growth rates have been fizzling out, with Azure up 38% year-on-year (adjusted for foreign exchange) and More Personal Computing down 16% year-on-year (adjusted for foreign exchange).
The stock is currently trading at 25 times forward earnings, which is the same as if interest rates were at 4%. This is a significant amount for a company whose CAGR EPS is not expected to be in the mid-teens. Investors must decide whether the potential upside of the stock is worth the price, or if it is already overvalued.
Overall, Microsoft is a high-quality company and has the potential to experience future growth through its AI development. However, investors must be aware that the stock may be overvalued and consider whether the potential upside is worth the current price.
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