Microsoft (MSFT): How Recent AI Advances Shape the Stock’s Valuation Outlook

If you’re weighing your next move with Microsoft (MSFT), you’re not alone. Recent headlines about the company’s in-house AI launches, like MAI-Voice-1 and MAI-1 Preview, have caught the eye of investors and tech enthusiasts alike. Microsoft’s push into its own AI models, breaking out from its long-standing reliance on OpenAI, signals that the company is doubling down on building its own AI ecosystem at a time when the market is buzzing about the power and promise of enterprise AI.

All this excitement hasn’t guaranteed a straight path upward for the stock, though. Over the past month, Microsoft shares have slid by about 5%, despite posting a 5% bounce across the past three months and advancing 23% in the last year. That’s a decent stretch of growth, but it comes as Microsoft continues to expand Copilot across new industries, settles legal disputes, and weathers occasional pullbacks tied to broader tech sector swings and competitive headlines from peers like OpenAI.

So, after a year with both surges and setbacks, is Microsoft stock trading at a discount that’s too good to pass up, or has the market already factored in its AI ambitions and future growth potential?

Most Popular Narrative: 17% Overvalued

According to the narrative by Unike, Microsoft is currently viewed as trading above its fair value, with projections that anticipate major growth drivers in the years ahead.

AI and Cloud Dominance: Increased enterprise AI adoption will drive higher Azure demand and enhance productivity tools (Copilot, Dynamics AI).

Cybersecurity Expansion: Microsoft is growing its security software business, competing with CrowdStrike, Palo Alto, and Zscaler.

Curious how one growth thesis sees Microsoft becoming even more dominant? The narrative hinges on ambitious revenue expectations and higher future profitability margins, all built into its fair value calculation. What unique assumptions turn these projections into a towering price estimate? See which bold forecasts fuel this attention-grabbing valuation.

Result: Fair Value of $423.14 (OVERVALUEED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, if Copilot adoption slows or regulatory scrutiny increases, Microsoft’s bullish AI story could be undermined and fresh questions could be raised about its valuation.

Find out about the key risks to this Microsoft narrative.

Another View: SWS DCF Model Suggests Value Is Closer Than It Appears

While the popular narrative calls Microsoft overvalued, our SWS DCF model tells a different story and indicates that the stock is trading slightly below its estimate of fair value. Could the real opportunity be hiding in plain sight?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Microsoft for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Microsoft Narrative

If you want to dig into the numbers or challenge these perspectives, you can craft your own viewpoint with just a few clicks: Do it your way.

A great starting point for your Microsoft research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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