Microsoft (MSFT): fair value

Fair-value band

The normal range for this name runs from $434 (cheap) to $727 (expensive); it is now priced at $534.

That is 0.5σ below this name's own normal premium.

Is Microsoft undervalued?

Fair, relative to its own history. Microsoft trades at $534, 4% above the fair value this model estimates, but it has habitually traded 13% above fair value, and today's gap is 0.5σ below that norm, within the range it normally trades in, so the verdict is Fair: priced normally for itself, not necessarily fairly valued.

Diligence checklist

7 pass · 3 fail · 1 no data

• PASSCash actually collected from profit, last 12 months: 135%XBRL · Microsoft gets $1.35 of real cash for every $1 of reported profit which means profits are real and not just numbers on paper. That's a good sign.
• FAILGap between paper profit and real cash: -7.1%XBRL · Microsoft collected more cash than it booked as profit, by 7.1% of everything it owns. That is the conservative direction, but it is far enough past my 5% line to flag: a gap this wide usually means something large and non-cash is running through the earnings, and I want to know what it is before I trust the profit figure.
• PASSDebt compared to one year of cash earnings: 0.10xXBRL · Microsoft could pay off everything it owes, net of the cash it holds, with 0.10 of a single year's earnings. My limit for a name I would buy is three years, so debt is not a risk here.
• PASSHow much more it earns on capital than that capital costs: +14.28ppXBRL · Microsoft earns 14.3 points more on the capital it employs than that capital costs. The gap is real but not wide, so growth here creates value at a modest rate rather than compounding it. The gap is no wider than it was at the start of the window.
• FAILStock sold by executives and directors on the open market, last 6 months: $17.8MEDGAR (dealbreaker) · Althoff Judson sold $12.0M of stock in the last 6 months, outside any pre-planned selling schedule, and $17.8M went out that way in total. My rulebook says more than $5 million of this kind of selling is disqualifying for a "long" position (buying the stock). The full list of open-market sellers: Althoff Judson $12.0M, Numoto Takeshi $5.2M, Coleman Amy $0.5M. A further $64.2M went out under pre-planned 10b5-1 schedules, which I don't count: those sales are set up months ahead and say nothing about what management thinks today. Options being exercised, and shares held back to cover the tax on them, are not sales and I don't count them either. filing ↗
• PASSHow long the CEO has run this company: 12.7 yearsTEXT · Microsoft's chief executive has held the job since February 4, 2014, which is 12.7 years and covers a full cycle: good years and bad ones, both on this person's record. That is long enough for the record to mean something. Time served isn't the same as doing the job well, though, so read this next to the return-on-capital line above, which covers the same years. filing ↗
• PASSProfit margin held up during the last sales slump: 63.3% vs 65.8% baseXBRL · The last time Microsoft's revenue fell, its profit margin per unit sold only slipped a little, from about 65.8% to 63.3%. It means Microsoft isn't being forced to cut prices to keep product moving, which is what a company with a weak competitive position has to do. This is the accounts talking, not the filing: I'm reading the 4 quarters from December 2015 to September 2016, measured against the year going into it, and a shift in what the company sold can imitate pricing power either way.
• FAILNormal profit margin across a full business cycle: FCF margin 20.9% vs 29.6% medianXBRL · Microsoft is earning a 20.9% cash margin against a long-run average of 29.6%, 29% worse than normal. Either this is a trough the business climbs out of, or the average no longer describes it. My valuation grows the average, so it assumes the first: if that's wrong, the value on this page is too high. Across the window the margin ran between 20.9% in June 2026 and 35.3% in September 2021.
• N/AHow much of the stock trades on an average day: $11,263MMARKET · Microsoft trades so much volume that this basically isn't a concern. There's no pass or fail here because the answer depends on how big a position I'd actually want to take.
• PASSShare of revenue from its single biggest customer: no customer 10%+ of revenue disclosedTEXT · Microsoft's July 29, 2026 10-K doesn't disclose any customer at 10% or more of revenue. The accounting rules require that disclosure only when it applies, so its absence means no single customer clears that bar, which is well inside the quarter of revenue where I stop work. This comes from the filing's prose rather than a tagged number: the percentages sit in an XBRL field the SEC's bulk data drops. filing ↗
• PASSWhether the company switched auditors in the last 2 years: noneEDGAR · Companies sometimes switch accounting auditors right before something bad is uncovered which can be a warning sign. Microsoft hasn't changed auditors in the last 2 years, so there's no such red flag here.