MSFT - Microsoft: Currently Overvalued But It's Set To Be A Potential Outperformer Throughout 2033
2024-06-30 08:31:54 ET
Summary
- Microsoft's valuation is upgraded from "hold" to "buy" with a near-term target of $417.30 and a 2033 target of $1,099.90, implying 14.6% annual returns.
- The Company's growth is driven by its cloud business (Azure), and acquisitions like Activision-Blizzard.
- MSFT holds a 24% cloud market share (second to Amazon's 31%) and dominates with a 72.17% share in the PC OS market.
- Microsoft's TAM is expected to grow from $754.1B in 2024 to $1.70T by 2029, with the cloud segment driving most of the growth.
- The valuation (which uses a DCF model) suggests 14.6% annual returns throughout 2033 (and could be higher if Azure grows faster than expected).
Thesis
In my previous article on Microsoft Corporation ( MSFT ), I downgraded the stock from "buy" to "hold", explaining that according to my models, Microsoft had reached a fair valuation when it was trading at $425.52 (which was 6.6% higher than my fair stock price estimate of $397.49). Furthermore, I suggested that the stock could reach a price of $701.68, translating into 10.50% annual returns throughout 2024-2029.
Microsoft released Q3 2024 earnings on April 25. For that quarter, Microsoft reported an EPS of $2.94 (3.8% higher than estimated) and revenues of $61.9B (1.65% higher than estimated)....
Microsoft: Currently Overvalued, But It's Set To Be A Potential Outperformer Throughout 2033