Is Microsoft stock a buy after hitting a $2T valuation?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Jun 23, 2021
  • Microsoft’s stock price rallied to a new all-time high of $266.83, Wednesday morning.
  • The company hit a market valuation of $2 trillion.
  • So, is Microsoft stock still a buy or overvalued?

Microsoft Corp’s (NASDAQ:MSFT) share price rallied to a new all-time high of $266.83, Wednesday morning valuing the company at slightly more than $2 trillion. The stock is up more than 430% over the last five years. As a result, MSFT is now an exciting growth stock despite its massive market value.

Fundamentals overview: Microsoft’s transition to a subscription model has paid off

Microsoft’s subscription business model has paid off. The company sold renewable computing software off-the-shelf, facing various challenges like users sticking to old software rather than upgrading to newer versions.

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However, the current model allows Microsoft to accurately forecast sales based on the number of subscribers it has on its books rather than estimating how many might upgrade to a newly launched version.

This shift has allowed it to expand to new lines of business, including cloud computing through Azure. MSFT shares look optimally valued at a P/E ratio of approximately 36.13 and a forward P/E of 31.77. However, it is expanding to new lines of business that will drive future growth.

Source – TradingView

Technical overview: short-term pullback looks imminent, but the bull-run will continue

Microsoft’s share price is up 21% this year and about 31% over the last 12 months. However, the stock price entered overbought conditions after Wednesday’s extended gains. 

Investors can target short-term pullback profits at $256.85 and $248.79. Conversely, bullish investors can target $272.61 and $280.31.

Bottom line: Microsoft is an attractive buy, long term

Although investors can expect a short-term pullback, Microsoft looks exciting for long-term investors. The next retreat will create an opportunity to buy.

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