Microsoft Stock Price Closes Gap to Intrinsic Value

Microsoft's stock price has delivered a 68.0% gain over the past five years, but current checks suggest it now trades close to its intrinsic value.

The company's ongoing investment in AI infrastructure and partnerships can support expectations for future cash flows, while rising costs for data centers, energy, and custom chips may affect how much of that eventually reaches the bottom line.

A Discounted Cash Flow (DCF) model projects Microsoft's future cash flows and brings them back to today. On this basis, Microsoft is modeled on a growing cash flow profile, with latest twelve month free cash flow of about $96.0b and analyst projections that remain firmly in positive territory over the coming decade.

The DCF outcome suggests the market is already pricing in a good portion of those investments, but not fully closing the gap to the modeled cash flows. The company's earnings multiple tells a different story and screens the stock as undervalued relative to what its modeled P/E might support.