BEIJING, CHINA – NOVEMBER 11: The Microsoft logo is displayed on the company’s China headquarters building, which also serves as the headquarters of Microsoft’s Asia-Pacific R&D Group, on November 11, 2025, in Beijing, China. Microsoft Corporation (NASDAQ: MSFT), one of the world’s leading technology companies, conducts software development, cloud computing, and artificial intelligence research at this Beijing campus. (Photo by Cheng Xin/Getty Images)
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Microsoft stock (NASDAQ: MSFT) has surged by 20% this year, largely powered by robust Azure growth and the ongoing excitement surrounding the AI boom. However, following its rise past the $500 mark, a critical question emerges: Is the stock still a worthwhile purchase, or is a correction likely? Based on our analysis, we believe the stock is currently overvalued. Furthermore, considering its historical performance (as detailed in the subsequent sections), a significant 30% downside risk is not an unrealistic expectation.
Here is our evaluation:
Stock Opinion
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Let’s dive into the details of each assessed factor, but first, for a quick overview: With a market capitalization of $3.8 trillion, Microsoft offers software, services, devices, and solutions, including Office, Microsoft Teams, Windows OEM licensing, and security and compliance tools for productivity and computing needs.
[1] Valuation Appears Very High
MSFT Stock Valuation
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This table illustrates how MSFT is valued compared to the broader market. For further details, see: MSFT Valuation Ratios
[2] Growth Is Strong
- Microsoft has experienced an average top-line growth rate of 13.2% over the past 3 years
- Its revenues have grown 16% from $254 billion to $294 billion in the last 12 months
- Additionally, its quarterly revenues increased by 18.4% to $78 billion in the most recent quarter from $66 billion a year ago.
MSFT Revenue Growth
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This table demonstrates how MSFT is growing in comparison to the broader market. For more information, see: MSFT Revenue Comparison
[3] Profitability Looks Very Strong
- MSFT’s operating income for the last 12 months was $136 billion, yielding an operating margin of 46.3%
- With a cash flow margin of 50.0%, it generated approximately $147 billion in operating cash flow during this period
- For the same timeframe, MSFT produced nearly $105 billion in net income, equating to a net margin of about 35.7%
MSFT Profitability
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This table highlights MSFT’s profitability compared to the broader market. For additional details, see: MSFT Operating Income Comparison
[4] Financial Stability Appears Very Strong
- At the end of the most recent quarter, MSFT’s debt stood at $61 billion, while its current market capitalization is $3.8 trillion. This results in a debt-to-equity ratio of 1.6%
- MSFT’s cash (including cash equivalents) accounts for $102 billion of $636 billion in total assets. This leads to a cash-to-assets ratio of 16.0%
MSFT Financial Stability
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[5] Downturn Resilience Is Moderate
MSFT experienced an impact slightly better than the S&P 500 index during various economic downturns. We evaluate this based on both (a) the extent of the stock’s decline and (b) the speed of its recovery.
2022 Inflation Shock
- MSFT stock dropped 37.6% from a maximum of $343.11 on 19 November 2021 to $214.25 on 3 November 2022 compared to a peak-to-trough decline of 25.4% for the S&P 500.
- Nevertheless, the stock fully rebounded to its pre-crisis high by 15 June 2023
- Since then, the stock has risen to a peak of $542.07 on 28 October 2025 and currently trades at $508.68
MSFT Stock Performance During The 2022 Inflation Shock
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2020 Covid Pandemic
- MSFT stock declined 28.2% from a peak of $188.70 on 10 February 2020 to $135.42 on 16 March 2020 compared to a peak-to-trough drop of 33.9% for the S&P 500.
- However, the stock fully regained its pre-crisis peak by 9 June 2020
MSFT Stock Performance During The 2020 COVID-19 Pandemic
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2008 Global Financial Crisis
- MSFT stock decreased 59.1% from a peak of $37.06 on 1 November 2007 to $15.15 on 9 March 2009, compared to a peak-to-trough decline of 56.8% for the S&P 500.
- Nevertheless, the stock fully returned to its pre-crisis peak by 6 November 2013
MSFT Stock Performance During The 2008 Global Financial Crisis
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Overall, we believe there is little reason to worry about MSFT stock given its overall strong operating performance and financial health. However, considering its very high valuation, the stock seems relatively expensive.
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