Microsoft Corp
NASDAQ:MSFT
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Intrinsic Value
The intrinsic value of one MSFT stock under the Base Case scenario is 319.3 USD. Compared to the current market price of 416.32 USD, Microsoft Corp is Overvalued by 23%.
The Intrinsic Value is calculated as the average of DCF and Relative values:
Valuation Backtest
Microsoft Corp
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Fundamental Analysis
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Microsoft Corp. is a pioneering technology giant that has consistently evolved since its founding in 1975 by Bill Gates and Paul Allen. Initially revolutionizing the personal computing landscape with its Windows operating system, the company has adeptly transitioned into the cloud computing era, now dominated by Azure, its highly successful cloud platform. This strategic pivot not only solidified Microsoft’s position as a leader in cloud services but also enabled it to capture a growing share of the enterprise market, empowering businesses with scalable solutions. With a commitment to innovation, Microsoft continues to invest heavily in artificial intelligence, productivity tools, and the ga...
Microsoft Corp. is a pioneering technology giant that has consistently evolved since its founding in 1975 by Bill Gates and Paul Allen. Initially revolutionizing the personal computing landscape with its Windows operating system, the company has adeptly transitioned into the cloud computing era, now dominated by Azure, its highly successful cloud platform. This strategic pivot not only solidified Microsoft’s position as a leader in cloud services but also enabled it to capture a growing share of the enterprise market, empowering businesses with scalable solutions. With a commitment to innovation, Microsoft continues to invest heavily in artificial intelligence, productivity tools, and the gaming sector, ensuring it remains at the forefront of technological advancements.
For investors, Microsoft's diversified revenue streams present a compelling value proposition. The company operates under a subscription-based model that enhances predictable cash flow, particularly through its Office 365 and Microsoft 365 services. By focusing on long-term growth strategies rather than just short-term profits, Microsoft has consistently delivered solid financial performance, characterized by strong margins and robust cash generation. As a result, the company's stock is viewed as a reliable long-term investment, bolstered by a strong balance sheet and a history of returning capital to shareholders via dividends and share buybacks. With ongoing investments in emerging technologies and strategic acquisitions, Microsoft is well-positioned to navigate the future and continue its trajectory as a global leader in technology.
Microsoft Corp. operates through several core business segments that contribute to its overall revenue. Here’s an overview of its main business segments:
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Productivity and Business Processes:
- This segment includes Microsoft Office products and services, such as Office 365, Microsoft Teams, and cloud-based services. It also encompasses LinkedIn and other business applications like Dynamics 365. The focus here is on enhancing productivity for individuals and organizations.
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Intelligent Cloud:
- This segment includes Microsoft's Azure cloud computing platform, which provides a range of services, including computing, analytics, storage, and networking. It also covers server products and enterprise services. Azure is a crucial growth driver as more businesses shift to cloud-based solutions.
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More Personal Computing:
- This segment consists of Windows operating system, Surface devices, and gaming products, including Xbox and related services. It also includes search and advertising services through Bing. This segment focuses on delivering products for consumers and businesses to enhance personal computing experiences.
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Gaming:
- While gaming is part of the More Personal Computing segment, it has grown into its own significant area of focus, particularly with Xbox game consoles, Xbox Game Pass (subscription service), and gaming software development through studios like Bethesda.
These segments allow Microsoft to leverage its strengths in software development and cloud computing, positioning itself as a leader in both enterprise and consumer technology markets. Each segment is designed to integrate seamlessly, supporting Microsoft's overall strategy of providing comprehensive, user-friendly solutions across a range of platforms and services.
Microsoft Corporation possesses several unique competitive advantages that bolster its position in the tech industry. Here are the key advantages:
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Diverse Product Ecosystem: Microsoft offers a wide range of products and services, including operating systems (Windows), productivity software (Microsoft Office), cloud services (Azure), and enterprise solutions (Dynamics 365). This diversity allows cross-selling and integration, enhancing customer retention.
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Brand Recognition and Reputation: With a long-standing presence in the technology sector, Microsoft enjoys strong brand recognition and a trusted reputation. This makes it easier to attract new customers and retain existing ones, particularly in enterprise markets.
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Strong Enterprise Relationships: Microsoft has established deep relationships with businesses of all sizes, providing tailored solutions and support. Their products are often seen as industry standards, leading to higher switching costs for clients.
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Cloud Dominance and Investment in AI: Azure is one of the leading cloud platforms, competing effectively with AWS and Google Cloud. Microsoft is heavily investing in artificial intelligence, enhancing its cloud services, and integrating AI features across its product suite, which provides a substantial edge over competitors.
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Robust Developer Community: Microsoft's support for developers through platforms like Visual Studio, .NET framework, and GitHub fosters a vibrant ecosystem that encourages innovation and enhances product offerings. This community drives continuous improvement and expansion of Microsoft products.
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Strategic Acquisitions: Microsoft has a history of making strategic acquisitions, such as LinkedIn and GitHub, which help expand its market reach and integrate additional services that complement its existing offerings.
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Network Effects: The widespread adoption of Microsoft tools creates a network effect. The more people and organizations use Microsoft products, the more valuable they become, leading to higher adoption rates and customer loyalty.
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Strong Financial Position: Microsoft consistently generates significant revenue and profits, allowing it to invest heavily in research and development, marketing, and strategic initiatives. This financial strength supports innovation and resilience against market fluctuations.
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Commitment to Security and Compliance: With the increasing emphasis on data security and regulatory compliance, Microsoft’s extensive security features and compliance certifications help reassure enterprises that their data is safe, making it a preferred choice for companies in highly regulated industries.
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Global Reach and Scale: Microsoft has a vast international presence, with localized products and services, enabling it to cater to a diverse customer base and adapt to regional market needs effectively.
These competitive advantages create significant barriers to entry for potential rivals and enable Microsoft to maintain its leadership position in the technology sector.
Microsoft Corp faces several risks and challenges in the near future that may impact its operations and growth. Here are some key areas to consider:
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Intense Competition: Microsoft operates in highly competitive markets such as cloud computing (Azure vs. AWS and Google Cloud), productivity software (Office vs. Google Workspace), and operating systems (Windows vs. macOS and Linux). Competitors continually innovate, which could impact Microsoft’s market share and pricing power.
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Regulatory Scrutiny: As a large technology company, Microsoft is subject to increased scrutiny from regulatory bodies around the world concerning antitrust issues, data privacy, and cybersecurity. New regulations could restrict operations or impose hefty fines, affecting profitability.
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Cybersecurity Threats: With a growing reliance on cloud services and software products, Microsoft faces risks from cyberattacks and data breaches. Ensuring the security and integrity of its products is crucial, as failures could result in loss of customer trust and significant financial repercussions.
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Dependency on Key Products: A significant portion of Microsoft’s revenue comes from its key products, such as Windows and Office. Any decline in demand or significant disruptions in these cash-generating segments could adversely affect overall performance.
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Economic Uncertainty: Global economic conditions, including inflation, recession fears, and geopolitical tensions, can impact corporate and consumer spending. Economic slowdowns may lead to reduced IT budgets, affecting sales of Microsoft’s software and services.
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Supply Chain Disruptions: Like many tech companies, Microsoft depends on global supply chains for hardware components. Disruptions due to geopolitical issues, pandemics, or natural disasters can affect product availability, particularly in areas like gaming (Xbox) and Surface devices.
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Technological Change and Adoption: The rapid pace of technological change means that Microsoft must continuously innovate and adapt. Failure to keep up with new trends, such as artificial intelligence and machine learning, may result in loss of competitive edge.
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Talent Retention and Acquisition: In a rapidly evolving tech landscape, attracting and retaining top talent is essential. High competition for skilled professionals can lead to increased labor costs and challenges in maintaining the workforce needed for innovation.
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Shifts in Consumer Preferences: Changes in how consumers and businesses use technology (e.g., a shift toward mobile and cloud-based solutions) may require Microsoft to pivot its product offerings and business strategies.
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Environmental and Social Governance (ESG) Expectations: Increasing pressure from stakeholders regarding sustainability practices and corporate responsibility could necessitate changes in Microsoft’s operational strategies and investments, potentially affecting short-term financial performance.
Navigating these risks will require Microsoft to be proactive in its strategic planning, innovation, and compliance efforts while maintaining agility in response to market dynamics.
Revenue & Expenses Breakdown
Microsoft Corp
Balance Sheet Decomposition
Microsoft Corp
Current Assets | 159.7B |
Cash & Short-Term Investments | 75.5B |
Receivables | 67.4B |
Other Current Assets | 16.8B |
Non-Current Assets | 352.4B |
Long-Term Investments | 14.6B |
PP&E | 154.6B |
Intangibles | 146.8B |
Other Non-Current Assets | 36.5B |
Current Liabilities | 125.3B |
Accounts Payable | 22B |
Accrued Liabilities | 16.1B |
Short-Term Debt | 6.7B |
Other Current Liabilities | 80.5B |
Non-Current Liabilities | 118.4B |
Long-Term Debt | 67.5B |
Other Non-Current Liabilities | 50.9B |
Earnings Waterfall
Microsoft Corp
Revenue
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245.1B
USD
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Cost of Revenue
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-74.1B
USD
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Gross Profit
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171B
USD
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Operating Expenses
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-61.6B
USD
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Operating Income
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109.4B
USD
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Other Expenses
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-21.3B
USD
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Net Income
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88.1B
USD
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Free Cash Flow Analysis
Microsoft Corp
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Free Cash Flow | USD |
Microsoft reported quarterly revenue of $64.7 billion, up 15%, with earnings per share of $2.95, up 10%. The company saw robust growth in commercial bookings by 17%, driven by significant Azure and Microsoft 365 contracts. Revenue from Microsoft Cloud was $36.8 billion, up 21%. The Activision acquisition impacted overall results, contributing to revenue growth but slightly dragging operating income. Future projections indicate revenue growth in low double digits, with AI infrastructure investments pushing FY '25 capital expenditures higher and operating margins slightly down. Microsoft's commitment includes substantial shareholder returns of over $34 billion in the fiscal year.
What is Earnings Call?
MSFT Profitability Score
Profitability Due Diligence
Microsoft Corp's profitability score is 77/100. The higher the profitability score, the more profitable the company is.
Score
Microsoft Corp's profitability score is 77/100. The higher the profitability score, the more profitable the company is.
MSFT Solvency Score
Solvency Due Diligence
Microsoft Corp's solvency score is 81/100. The higher the solvency score, the more solvent the company is.
Score
Microsoft Corp's solvency score is 81/100. The higher the solvency score, the more solvent the company is.
Wall St
Price Targets
MSFT Price Targets Summary
Microsoft Corp
According to Wall Street analysts, the average 1-year price target for MSFT is 506.3 USD with a low forecast of 444.4 USD and a high forecast of 630 USD.
Dividends
Current shareholder yield for MSFT is .
Shareholder yield represents the total return a company provides to its shareholders, calculated as the sum of dividend yield, buyback yield, and debt paydown yield. What is shareholder yield?
Ownership
MSFT Insider Trading
Buy and sell transactions by insiders
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Profile
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Description
Microsoft Corp. engages in the development and support of software, services, devices, and solutions. The company is headquartered in Redmond, Washington and currently employs 181,000 full-time employees. The firm develops and supports a range of software products, services, devices, and solutions. The firm's segments include Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. The firm's products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; and video games. The company also designs, manufactures, and sells devices, including personal computers (PCs), tablets, gaming and entertainment consoles, other intelligent devices, and related accessories. The company offers an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and it provides solution support and consulting services. The company markets and distributes its products and services through original equipment manufacturers, direct, and distributors and resellers.
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Officers
The intrinsic value of one MSFT stock under the Base Case scenario is 319.3 USD.
Compared to the current market price of 416.32 USD, Microsoft Corp is Overvalued by 23%.