MICROSOFT CORPORATION (MSFT): what the price requires
At today's price, MICROSOFT CORPORATION (MSFT) is priced for +15.0% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Source: https://boothcheck.com/report/MSFT
Headline
| Field | Value |
|---|---|
| Ticker | MSFT |
| Company | MICROSOFT CORPORATION |
| Current price | $390.42/sh |
| Composition | Server products and cloud services 35% / Microsoft 365 Commercial products and cloud services 31% / Gaming 8% / LinkedIn 6% / Windows and Devices 6% / Search and news advertising 5% / Dynamics products and cloud services 3% / Enterprise and partner services 3% / Microsoft 365 Consumer products and cloud services 3% / Other 0% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 12.0% |
| Operating margin today | 47.0% |
| Margin compression implied | -35.0pp |
| Implied growth | 15.0% |
| Multiple paid | 20x operating income |
The operating-margin requirement is derived from the framework's value band at year 10, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 9.1% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~6.6pp.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | +0.15σ |
| cohort percentile (of 177 peers) | 32 |
| sustained it ~5 years at this level | 51% |
| implied end-window share | 2% |
Valuation X-Ray
The price is justified by relative-multiple and growth-DCF; asset-based/earnings-power land below the price.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 2.35x | 5 | expensive |
| Earnings | 2.86x | 5 | expensive |
| Relative | 0.68x | 5 | justifies |
| Growth | 0.69x | 3 | justifies |
Families that justify the price: Relative, Growth Families that call it expensive: Asset, Earnings
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.1%); the inversion above states its own rate.
Per-Model Detail (n=18)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $670.82 | 0.58x | yes | FCF base $156.5B, growth 18% (input: historical growth), terminal g 4.0%, WACC 9.1%, 7yr projection |
| DCF Exit Multiple | Growth | $563.63 | 0.69x | yes | Exit EV/EBITDA: 14.1x / 16.1x / 18.1x (bear / base = today's held flat / bull), 7yr |
| Relative Valuation | Relative | $619.08 | 0.63x | yes | P/E 35x (static sector reference · 2026-04), scenarios: 28.4x / 35.0x / 41.6x (bear / base = reference held flat / bull), EV/EBITDA 25x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $166.24 | 2.35x | yes | BV/sh $55.66, ROE (TTM) 27.6%, ke 9.3% |
| Two-Stage Excess Return | Asset | $292.49 | 1.33x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $429.97 | 0.91x | yes | Rev $318.3B, growth 18% (input: historical growth; tapered), Terminal P/S: 7.4x / 9.1x / 10.9x (bear / base = today's held flat / bull, cap 12x) |
| Peter Lynch Fair Value | Relative | $460.84 | 0.85x | yes | EPS $15.36, growth 30% (input: historical EPS growth), PEG=0.85 (Undervalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $136.39 | 2.86x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $108.72B × (1−19%) / WACC 9.1% → EPV (no growth) |
| Residual Income | Asset | $250.14 | 1.56x | yes | BV $55.66 + 5yr PV of (ROE (TTM) 27.6% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $138.67 | 2.82x | yes | √(22.5 × EPS $15.36 × BVPS $55.66) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $603.61 | 0.65x | yes | EBITDA $179.26B × sector EV/EBITDA 25.0x |
| FCF Yield | Earnings | $107.56 | 3.63x | yes | FCF $72916.0M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $89.61 | 4.36x | yes | SBC-adj FCF $60.56B (FCF $72.92B − SBC $12.36B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $495.49 | 0.79x | yes | EPS $15.36 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $47.38 | 8.24x | yes | BV $55.66 × (ROIC 7.7% / WACC 9.1%) |
| P/Sales Sector | Relative | $342.00 | 1.14x | yes | Revenue $318.27B × sector P/S 8.0x |
| PEG Fair Value | Relative | $575.86 | 0.68x | yes | EPS $15.36 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $166.01 | 2.35x | yes | EPS $15.36 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net cash | $38.0b |
| Net debt / NOPAT (after-tax) | -0.32x (net cash) |
| Net debt / operating income (pre-tax) | -0.26x (net cash) |
| Interest coverage | 52.3x |
| Share count CAGR (buyback) | -0.3% |
| Burning cash | no |
Bullet Takeaways
- Microsoft sells software almost no one cancels, and its commercial backlog of contracted-but-unrecognized work has swelled to $392 billion, a queue of revenue the company has already signed but not yet delivered.
- The biggest risk is the spend behind the growth: capital expenditure ran $34.9 billion in a single quarter and management has guided fiscal 2026 capex above fiscal 2025, so the AI buildout has to convert into durable cloud demand rather than idle capacity.
- Watch the next earnings print in late July for Azure's growth rate and the gross-margin path now that the reworked OpenAI arrangement has moved licensing to non-exclusive terms.
Bull Case
Start with what the market is paying for, because at $379 (as of June 27, 2026) the price leans on the two valuation families that credit forward growth and peer multiples, while the asset-value and earnings-power lenses both read the price as expensive. That split is the whole bull case in miniature. The conservative methods anchor to what Microsoft earns today; the methods that win here are the ones that assume the cloud-and-AI franchise keeps compounding. The question is whether the business backs that assumption, and the backlog says it does. Commercial remaining performance obligation, the contracted work Microsoft has booked but not yet recognized as revenue, reached $392 billion, up 51% year over year. That is not a forecast. It is signed demand sitting in a queue.
The engine underneath is the Intelligent Cloud segment, which the 10-K describes as "our public, private, and hybrid server products and cloud services that power modern business and developers". Azure and other cloud services grew 40% in the most recent quarter, and management has said the constraint is capacity, not customers. A company turning away demand because it cannot build data centers fast enough is in an enviable position, even if the spend to relieve that constraint is enormous. The 10-K notes growth "across all lines of business" in the cloud-services mix, and the Dynamics line alone grew revenue 15% with Dynamics 365 up 19%. These are not one segment carrying the company. They are a portfolio of recurring-revenue franchises growing in unison.
The productivity franchise is the segment the price leans on hardest, and it is the most defensible part of the business. Microsoft 365 is embedded in the daily workflow of corporate knowledge work, and Copilot is being sold into that installed base seat by seat: of the 20 million Microsoft 365 users now paying for Copilot, a quarter were added in the first four months of 2026. The bear will note that the price requires this franchise to keep growing, and it does. But it requires growth, not heroics. The balance sheet removes the financing risk entirely: $78.3 billion in liquid assets against $40.3 billion of gross debt leaves Microsoft in a net-cash position of $38 billion, with operating income covering interest more than fifty times over. Microsoft can fund the AI buildout from its own cash flow and still buy back stock. That is the difference between betting on growth and betting on growth a fortress can afford.
Bear Case
The bear case begins with how management is deploying capital, because the scale of the AI buildout has turned Microsoft from a cash-returning machine into a cash-consuming one, at least temporarily. Capital expenditure hit $34.9 billion in a single quarter, and management guided fiscal 2026 capex to grow above fiscal 2025's already-elevated level. Every dollar of that goes into data centers and chips on a bet that AI demand shows up at the volume and price the spend assumes. If it does not, the depreciation lands on the income statement regardless, and the returns on that capital compress. The 10-K is candid that the business "competes with cloud-based and on-premises business solution providers", and the same hyperscalers Microsoft races against, Amazon and Google, are pouring comparable sums into the same customers and the same chips.
The competitive picture also shifted under the company's feet. The OpenAI partnership that gave Microsoft an early lead in generative AI was restructured in April 2026 to non-exclusive licensing, with future models getting only a four-month Azure-exclusive window before broader distribution. The reworked terms help gross margins and relieve some backlog concerns, but they also confirm the moat is narrower than the original arrangement implied. The models Microsoft pays to access are now sold elsewhere too. Investors have begun questioning whether Copilot's adoption was as strong as portrayed, and whether Azure's growth can hold its pace. The 10-K itself flags intensifying scrutiny under "U.S. and foreign competition laws", a reminder that Microsoft's scale invites regulatory friction in every major market.
Then there is the price. The earnings-power lens, which asks what the business is worth on the profit it generates today with no growth, lands far below the current price. So does the asset-value lens built on book value and returns on equity. Only the methods that credit forward growth and peer multiples reach $379. The bet embedded in the price is that the productivity-and-cloud franchise keeps growing at a pace the conservative methods refuse to assume. Microsoft has earned the benefit of the doubt on execution. But a price that requires sustained high growth has no cushion if Azure decelerates, if the capex cycle outruns demand, or if the AI economics that justify the spend prove thinner than the buildout assumes. The downside is not bankruptcy; the net-cash balance sheet rules that out. The downside is paying a growth price for a business that grows at a merely good rate.
Valuation
At $379, the price is making a specific bet about the productivity-and-business-processes franchise, the segment the market treats as carrying the priced-in premium. Worked backward, the current price does not even require that segment to accelerate; the embedded operating-growth assumption sits roughly flat, slightly negative on a single solve, which places the implied bet in the lower half of where comparable software multiples land. In plain terms, the market is not pricing Microsoft for a moonshot. It is pricing it for durability: steady compounding from a franchise that has already shown it can grow.
The disagreement among the valuation methods sharpens the picture. Group them into families and the spread is wide. The earnings-power methods, which value the business on today's normalized profit with no growth, sit well below the price; Earnings Power Value lands near $136, built on five-year-average operating income capitalized at the cost of capital. The asset-value methods, anchored to book value and returns on equity, also sit below the price, with Simple Excess Return around $166 against a trailing return on equity of 27.6%. What reaches the price is the forward-growth and peer-multiple families: the cash-flow methods get to $552 to $672, but only by carrying today's roughly 16x exit EBITDA multiple flat for the life of the forecast, and the relative-valuation method reaches $619 at a 35x sector P/E. The pattern is unambiguous. The price is a bet on continued growth and on the peer group holding its premium, not a price the conservative static methods support.
The productivity franchise is the right peer set to weigh that bet against, and the 10-K grounds the segment's economics directly, citing growth "across all lines of business" in the cloud-services mix and a 15% rise in Dynamics revenue with Dynamics 365 up 19%. The relevant cohort here is the software-platform group, Oracle, Salesforce, and Adobe, where Microsoft's blended multiple sits broadly in line rather than stretched. The cloud cohort, Amazon and Google, frames the Intelligent Cloud bet. Solvency removes the financing question from the equation entirely: $38 billion of net cash, interest covered more than fifty times, and a share count that has drifted down rather than up. There is no leverage risk in this story. The risk is purely in the price, which credits a growth path the conservative methods will not underwrite, against a balance sheet that can comfortably fund the attempt.
Catalysts
The defining recent event was the April 2026 restructuring of the OpenAI partnership, which ended the exclusivity at the center of the original deal and moved licensing to non-exclusive terms, with future models getting a four-month Azure-exclusive window before wider distribution. The reworked payment terms directly benefit gross margins and ease some of the backlog overhang, though they also mean the models Microsoft funds are now sold to rivals, including through Amazon's platform. This is the single most important variable for how the cloud-and-AI thesis re-rates from here.
Recent operating results gave the bulls fresh evidence. The most recent quarter delivered revenue of $77.7 billion, up 18%, with Azure and other cloud services growing 40% and Microsoft Cloud revenue up 26% to $49.1 billion. The contracted backlog jumped 51% to $392 billion. The counterweight is capital expenditure of $34.9 billion in the quarter, with fiscal 2026 capex guided above the prior year, which keeps the spend-versus-return debate front and center. Copilot adoption has been the swing factor in sentiment: 20 million Microsoft 365 users now pay for it, with a quarter of those added in early 2026.
Analyst sentiment remains heavily skewed bullish, with a consensus rating near Strong Buy and an average price target in the low $560s over the trailing three months. That target sits well above the framework's view, and the gap is straightforward: the street credits Azure's growth pace and Copilot monetization holding at levels the conservative valuation methods will not assume. The next earnings print in late July is the next test of whether Azure's growth rate and the post-restructuring gross-margin trajectory justify the premium the price already carries.
Peer Cohorts (Per Segment, With Filing Citations)
Productivity and Business Processes (reported)
- ORCL (Oracle Corp)
- (no filing in the citation store)
- CRM (Salesforce, Inc.)
- (no filing in the citation store)
- ADBE (ADOBE INC.)
- (no filing in the citation store)
Intelligent Cloud (reported)
- AMZN (AMAZON COM INC)
- (no filing in the citation store)
- GOOGL (ALPHABET INC.)
- (no filing in the citation store)
- ORCL (Oracle Corp)
- (no filing in the citation store)
More Personal Computing (reported)
- AAPL (Apple Inc.)
- (no filing in the citation store)
- SONY (SONY)
- (no filing in the citation store)
- HPQ (HP INC.)
- (no filing in the citation store)
- DELL (Dell Technologies Inc.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Microsoft FY2026 Q1 earnings release, October 2025 · Windows Central, May 2026 · Microsoft official blog, April 27, 2026 · CIO Dive, 2026 · MarketBeat, June 2026; TipRanks, June 2026