Microsoft's Valuation Analysis Using Peer Multiples and Financial Metrics
This report evaluates Microsoft's valuation by comparing its financial metrics to those of its closest peers. We calculate the fair enterprise value (EV), fair equity value, and fair share price using the mean peer multiple (Price/Sales Ratio) and Microsoft's financial data. We also compare these results to the consensus price target from analysts.
Peer Price/Sales Ratios
The Price/Sales (P/S) ratios for Microsoft's closest peers are as follows:
| Company Name | Price / Sales |
|---|---|
| C3.ai, Inc. | 7.30 |
| BlackBerry Limited | 5.21 |
| Core Scientific, Inc. | 7.04 |
| CrowdStrike Holdings, Inc. | 24.64 |
| CoreWeave, Inc. Class A Common Stock | 8.45 |
| Cloudflare, Inc. | 22.02 |
| Oracle Corporation | 8.04 |
| Palo Alto Networks, Inc. | 12.91 |
| Palantir Technologies Inc. | 59.39 |
| Zeta Global Holdings Corp. | 3.33 |
Summary of Peer Multiples
- Mean: 15.83
- Median: 8.25
- Range: 56.06
The mean P/S ratio of 15.83 suggests that, on average, these companies are valued at 15.83 times their revenue. However, the wide range (from 3.33 to 59.39) indicates significant variability in how these companies are valued by the market.
Microsoft's Valuation Using Peer Multiples
Using the mean peer P/S ratio of 15.83, we calculate the following:
- Fair EV = Mean Peer Multiple × Microsoft's Revenue
- Microsoft's Revenue (2024): $245.12 billion
- Fair EV = 15.83 × $245.12 billion = $3,880.28 billion
- Fair Equity Value = Fair EV – Microsoft's Net Debt
- Microsoft's Net Debt (2024): $48.81 billion
- Fair Equity Value = $3,880.28 billion – $48.81 billion = $3,831.47 billion
- Fair Share Price = Fair Equity Value / Diluted Shares Outstanding
- Microsoft's Diluted Shares Outstanding (2024): 7.47 billion
- Fair Share Price = $3,831.47 billion / 7.47 billion = $512.98
Consensus Price Target
Analysts' consensus price target for Microsoft is $531.40, based on the average of the last five reported targets:
- $600
- $515
- $472
- $475
- $595
Final Valuation Table
| $MSFT’s Name | Fair EV | Fair Equity Value | Fair Share Price | Consensus Price Target |
|---|---|---|---|---|
| Microsoft | $3,880,281,260,000 | $3,831,469,260,000 | $512.98 | $531.40 |
Conclusion
Microsoft's fair share price based on peer multiples is $512.98, slightly below the current analyst consensus of $531.40. This suggests that the market may be pricing in additional growth expectations or other factors not captured by the peer multiple approach. However, the valuation appears reasonable given the company's strong financials and market position.
Overall, Microsoft's valuation is in line with its peers, and the fair share price provides a useful benchmark for investors evaluating the stock.