When To Buy MSFT Stock!

Good day fellow investors. Microsoft

stock from peak to the current level over the five years didn't do much. But

if you look at the P ratio, it's 23 very cheap compared to the 31 32 of the market. The business is growing at

market. The business is growing at secondary rates. There is also a

secondary rates. There is also a dividend. So let's make an in that

dividend. So let's make an in that Microsoft stock analysis the numbers the business valuation whether it is a buy for you for me. But before that, what

I'm searching for is a value investment.

So I have to answer the following questions with an analysis. How sure am I that I will double my money in the next 5 years or that I will be rewarded

from owning this business? What is the risk if that doesn't happen? And is

there some margin of safety, some bonus value inside of it that the market is overlooking but might be there in I don't know five years. I've been

investing since 2002 on my research platform. I did more than 15% per year

platform. I did more than 15% per year over the last eight years with my model portfolio. You can check all what I do

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links out. Thank you very much. So,

let's go to Microsoft stock analysis, the whole party. Hope you enjoy it.

Let's start first with the numbers, the latest results. And if we look at the

latest results. And if we look at the results, everything looks pretty good.

15% growth. How can a business growing at 15% revenue be trading at just a P ratio of 23? If we trickle down to net

income, net income growth is 20%.

That is a staggering growth rate. Is a

business growing earnings at 20%, revenues at 15% at the P ratio of 23 a cheap business? The answer is clearly

cheap business? The answer is clearly yes. It is a cheap business. Then we

yes. It is a cheap business. Then we

have to look okay what's going on? How

sustainable is this growth? If Microsoft

keeps on growing at 20% over the next decade, then it is a total clear bargain. But we have to look at the

bargain. But we have to look at the numbers. There are 10 billion return to

numbers. There are 10 billion return to shareholders with six billion in dividends and share repurchases. I think

they are going down because they are investing a lot of money in capital expenditures property plant and equipment on the data centers huge

investments and here we have to ask what are the long-term owners earnings how are owners going to be rewarded from investing in Microsoft because there is

a discrepancy between profits we have seen the profits but the free cash flow is going down 22% and we'll see later

the plan is for it to go even lower. We

know the business Microsoft commercial consumer PC linkadin so let's say the legacy segment intelligent cloud with

now Azure that's growing 30% the rest is also growing good so all good the PC business is not growing but is still

there and profitable the key intelligent cloud Azour things like that staggering growth rates if you Just separate this

business that is profitable. Then you

look at 30 40% growth. Then you say this business deserves a P ratio 4050 if it continues like that. The personal

computing stable, profitable, adding 12 billion per year. Nothing wrong with that. But let's look at what are the

that. But let's look at what are the true owner's earnings over the long term. There is an impact from

term. There is an impact from investments in open AI. I've looked a little bit over the last financial

reports. Somewhere it is a positive

reports. Somewhere it is a positive impact, somewhere it is a negative impact. So here I think they added 7

impact. So here I think they added 7 billion. In the three months added

billion. In the three months added March, no impact. So nothing there. I

went a little bit to look through the past and there was this impact from open AI of 7 billion for the previous quarter

positive there then in the past they had a negative impact so 4 billion if we three and a half billion adjustment impact positive overall so nothing to

really focus because I think I think Google has a bigger impact there cash flow reconciliation net cash from operations, huge investments and free

cash flow is going down despite cash from operations going up. Now they are in a huge investment cycle and we have

to see how it will develop over time.

Nevertheless, still growing very very fast. However, if we look at the long

fast. However, if we look at the long term, we have seen Microsoft especially if you have been around like me also

stagnating and now especially over the last few years this was a little bit a down year but they are growing at double

digits. If that continues the investment

digits. If that continues the investment is a great investment. This was also the time when Microsoft was struggling with profits. I remember it was cheap. The

profits. I remember it was cheap. The

stock went now where for 13 years it was called dead money and then the new CEO Satya boomed it and here we are forex in

profits stock going up. But this company now that you're looking at 281 billion in revenue for the last year now 318 100

billion in profits. This company is changing because Microsoft here will

invest 190 billion in capex in AI over just this year and then likely more to compete. Look at how little they

compete. Look at how little they invested in the past and now that is booming. 190 billion is 2x the profits.

booming. 190 billion is 2x the profits.

And now from an accounting perspective we have to understand that if you spend 200 billion this year that means that from the next year you have to subtract

40 billion per year in depreciation and amortization because you spend it now and then the cost the accounting cost of

that goes down over five years five six years for Microsoft. So if they spend 200 billion per year, the current total

depreciation and amortization of just 30 billion, this will be 70 billion in 2027,

120 in 2028. If they just continue 160 170, that means that this will dwarf net income and might bring again to the

stagnation of the past. Because if you look at the number, Scapex was 10% of net income. Then it went to 40 and now

net income. Then it went to 40 and now we're going to 200%.

This means that Microsoft needs to constantly invest more and more and more. That is not the definition of a

more. That is not the definition of a great business. A great business just

great business. A great business just prints cash. That's something to keep in

prints cash. That's something to keep in mind. And then to justify the 200

mind. And then to justify the 200 billion per year, even more perhaps spending, they need to make another 200 million billion per year on the current

100 billion of net income on their revenues. So they need 300 billion of

revenues. So they need 300 billion of more revenue to make 200 billion. Then

this AI running it has a cost also. You

need to replace the chips, things like that. And even if they spend 300 billion

that. And even if they spend 300 billion the cost there over time get that revenue and they add 100 billion that's

not much for the expense because they are spending now 60% of revenue on development not 60% of profits 60% of

revenue so profits must be much higher we will be looking at 400 billion of operating profits to justify the capex

spend to get to a profit range of 200 billion in five years so that I double my money. So they need to more than

my money. So they need to more than double their revenues in order to justify this. You say Sven at 20% per

justify this. You say Sven at 20% per year they will double their revenues in four years. Yes, if they keep on growing

four years. Yes, if they keep on growing profitably. There is the cost to run

profitably. There is the cost to run that is also bigger than just a software. This business is a different

software. This business is a different business. Will they hit 20% growth?

business. Will they hit 20% growth?

That's the key risk and reward when it comes to investing in Microsoft today.

Where are they investing? I asked my assistant that's smarter than me. Data

center expansion and physical infrastructure, rising component and supply costs, Nvidia's profit margin is going higher

and higher. They want to own the AI

and higher. They want to own the AI stack, the foundation, the models that they can later scale indefinitely over

time. AI as they see it now must work

time. AI as they see it now must work and the investments that are done now must work and that must work for all the

players. It's not just them investing.

players. It's not just them investing.

It's Google, it's Meta, it's Microsoft.

SpaceX just got 75 billion to invest in space. What if SpaceX works? Then these

space. What if SpaceX works? Then these

guys don't work. If these guys don't work, SpaceX doesn't work. So, we have no idea who will win. We have discussed Musk's genius of finding money. Now,

other companies are going to the market to borrow money. Microsoft will also have to borrow money because they don't have the money, the cash flows to invest

60% of revenues. And you see also some bond sales not that significant but that will again the cost there will add to

the way on net profit. So let's answer the questions here and do that through a valuation to see what's priced in. If we

go to our intrinsic value table from our free investment course, you can download this table. You can learn more about

this table. You can learn more about value investing in the link in description below. And now we have to

description below. And now we have to play with the numbers. Microsoft

earnings per share 16.75.

There is a dividend 24% payout ratio.

And now we have to play with growth rates. Let's start with the best case

rates. Let's start with the best case scenario. What is priced in? Let's say

scenario. What is priced in? Let's say

they grow at 20% for the next five years, then 10% for the following five years. Let's say the valuation is around

years. Let's say the valuation is around 25. then yes the present value is 645

25. then yes the present value is 645 compared to Microsoft's 390 which means in the best case scenario

you can from Microsoft triple your money by 2035 which makes a great investment the expected return there if I take a

discount rate of 16% 16% per year in Microsoft from the best case scenario but let's stick to our 10 base case what

should I put here now you're looking at 20 but will they grow at 20% for all the next five years all right let's take an

average of 15 then 10% going forward because there is a huge depreciation burden coming when the investments start

pushing on the accounting side now you're just seeing the growth side but not yet the cost of it terminal multiple

if I put 20. So normal rates for Microsoft, can they do it? Perhaps yes.

And then you are here intrinsic value.

So still looking at a 10 11% return over time, which in this scenario, Microsoft is a buy because 10% per year, you don't

find it very often. However, going back to margin of safety scenario number three, let's say that accounting the

depreciation starts pushing pressure on the net profit margins and profits grow just at 5% then we can put 5% something

happens a recession this or that the market gets down to P ratio of 12 the present value something that would make

me consider Microsoft is down to 151 what's that 60% down and then if we put probability I don't know what will happen in the

future we can say that with a riskreward Microsoft is fairly priced now for let's say a 10% return expected return

discount rate comparative table Microsoft look it's 1.04 04 doesn't look bad when I divide the stock price with

the 10% expected return and I have also added it here to the quadrant 10% expected return but because of the risk

of the worstc case scenario I have put it at a higher risk and when it comes to that long-term 10-year investment when

people say senp ratio of 12. Now that is just the perhaps let's say we have a bad recession, terrible recession. Something

happens to Microsoft's earnings one year and then the market is very pessimistic and I need just one month in the next decade to get Microsoft at that negative

margin of safety intrinsic value. That's

not a projection. That's okay. If that

happens in that month, we bite. That's

it. And that's why I have put it on the quadrant. That's how value investors

quadrant. That's how value investors think and work because perhaps the biggest scare is competition. Everybody

is investing and that's different than what made Microsoft great as it is now.

So am I sure that I will double my money over the next five years? Could be. But

there is also the risk. What is the risk of that not happening? competition AI

depreciation costs putting pressure on net profit they need constantly invest more more and more this is now a high capital intensive business they are

spending 60% of revenue when there were a software low capex free cash flow printing in mean machine that's a huge

difference is there a hidden bonus some of you will say if they dominate the AI industry but so many smart people are going into when that happens usually

profits go down we as customers party because you can get AI agents for free now and that's the issue is it a buy for you if you have nothing better you say

okay on average I can work on the ups and downs if you buy 3% now you get 10% per year if it goes lower to the margin of safety you double your position then

I think Yes, Microsoft is a buy, but that's why I put it on the quadrant. So,

I hope you enjoyed this. If you want to check my buys, check my research platform. Also, check the links in

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