MSFT
MSFT
Accumulate 2026-03-18
Model
DCF
Price at Report
$391.79
Base IV
$510.21
Bear IV
$231.69
Bull IV
$882.90
Entry Zone: 243-469 · Sell Above: 750
Bore Family Office
Valuation Report — Microsoft Corporation (MSFT) • March 18, 2026
Unlevered DCF (FCFF @ WACC) • Discount Rate: 9.00% • Current Price: $391.79
Prepared by Lurch • Bore Family Office • Data: Finnhub, StockAnalysis.com, S&P Global Market Intelligence
🏢 Business Overview
Microsoft Corporation is a $2.9 trillion technology conglomerate operating across cloud computing (Azure), productivity software (Microsoft 365, Teams), enterprise services (Dynamics 365, LinkedIn), gaming (Xbox, Activision Blizzard), and AI infrastructure (Copilot, OpenAI partnership). Founded in 1975, Microsoft has successfully pivoted from its Windows/Office dominance to become the #2 global cloud provider and the leading enterprise AI platform vendor.
Azure cloud revenue grew 29% in Q2 FY2026 (Dec 2025), with AI services contributing an estimated 13 percentage points of that growth. The $13B+ OpenAI investment positions Microsoft as the primary commercial distribution channel for frontier AI models. FY2025 revenue reached $281.7B (+14.9% YoY), with Intelligent Cloud now representing 38% of revenue and growing fastest at 21.5%.
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| Productivity & Business Processes | $120,810M | 43% | +13.1% | — | M365, LinkedIn, Dynamics 365; Copilot upsell driving ARPU expansion |
| Intelligent Cloud | $106,265M | 38% | +21.5% | — | Azure (29% growth in Q2 FY2026), SQL Server, GitHub, enterprise services |
| More Personal Computing | $54,649M | 19% | +7.5% | — | Windows, Xbox/Activision, Surface, Search/advertising |
| Blended Growth Rate | — | 100% | +15.2% | — | Weighted avg across segments |
🔍 Quality Scorecard
| Metric | Value | Assessment |
|---|---|---|
| ROIC | 26.7% | ≥12% strong |
| FCF Margin | 25.4% | ≥10% strong |
| Debt / EBITDA | 0.4x | ≤2x conservative |
| Revenue Trend | Growing 3yr | 3-year directional trend |
| FCF Margin Trend | Contracting | Directional margin trajectory |
| Analyst Revisions | Upward revisions | Last 90 days consensus direction |
✅ Quality profile supports the valuation
📊 Financial Snapshot
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $168,088 | $198,270 | $211,915 | $245,122 | $281,724 |
| EBITDA ($M) | $81,602 | $97,843 | $102,384 | $131,720 | $162,681 |
| Operating Income ($M) | $69,916 | $83,383 | $88,523 | $109,433 | $128,528 |
| Net Income ($M) | $61,271 | $72,738 | $72,361 | $88,136 | $101,832 |
| EPS (diluted) | $8.05 | $9.65 | $9.68 | $11.80 | $13.64 |
| Free Cash Flow ($M) | $56,118 | $65,149 | $59,475 | $74,071 | $71,611 |
| Annual DPS | $2.240 | $2.480 | $2.720 | $3.000 | $3.320 |
| Total Debt ($M) | $67,775 | $61,270 | $59,965 | $67,127 | $60,588 |
| Rev YoY Growth | — | +18.0% | +6.9% | +15.7% | +14.9% |
| Gross Margin | 68.9% | 68.4% | 68.9% | 69.8% | 68.8% |
| EBITDA Margin | 48.5% | 49.3% | 48.3% | 53.7% | 57.7% |
| Operating Margin | 41.6% | 42.1% | 41.8% | 44.6% | 45.6% |
| Net Margin | 36.5% | 36.7% | 34.1% | 36.0% | 36.1% |
📈 DCF Scenarios
$232
🔴 Bear
$510
📊 Base
$883
🚀 Bull
$391.79
Current Price
$603
Analyst Avg PT
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | WACC | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 8.0% | 7.0% | 2.5% | 10.00% | $232 | ▼40.9% |
| 📊 Base | 15.0% | 12.0% | 3.0% | 9.00% | $510 | ▲30.2% |
| 🚀 Bull | 22.0% | 13.0% | 3.5% | 8.50% | $883 | ▲125.4% |
📋 Full 10-Year Projection Tables
Bear Scenario
Stage 1: 8.0% | Stage 2: 7.0% | Terminal: 2.5%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $90.00B | $81.82B | $81.82B |
| Year 2 ✦ | Stage 1 | $100.00B | $82.64B | $164.46B |
| Year 3 ✦ | Stage 1 | $110.00B | $82.64B | $247.11B |
| Year 4 ✦ | Stage 1 | $118.00B | $80.60B | $327.70B |
| Year 5 ✦ | Stage 1 | $125.00B | $77.62B | $405.32B |
| Year 6 | Stage 2 | $133.75B | $75.50B | $480.82B |
| Year 7 | Stage 2 | $143.11B | $73.44B | $554.26B |
| Year 8 | Stage 2 | $153.13B | $71.44B | $625.69B |
| Year 9 | Stage 2 | $163.85B | $69.49B | $695.18B |
| Year 10 | Stage 2 | $175.32B | $67.59B | $762.77B |
| Terminal | — | TV=$2396.0B | PV(TV)=$923.8B (55% of EV) | EV=$1686.5B |
| Intrinsic Value | — | — | EV $1686.5B − Net Debt → Equity / Shares | $232 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (10.00%) to get its present value. After Year 10, FCF grows at the terminal rate (2.5%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $2396.0B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $923.8B). Enterprise Value = PV of FCFs ($762.8B) + PV of TV ($923.8B) = $1686.5B. Subtracting net debt gives equity value of $1720.5B, divided by shares outstanding = $232 per share.
Base Scenario
Stage 1: 15.0% | Stage 2: 12.0% | Terminal: 3.0%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $115.00B | $105.50B | $105.50B |
| Year 2 ✦ | Stage 1 | $136.00B | $114.47B | $219.97B |
| Year 3 ✦ | Stage 1 | $156.00B | $120.46B | $340.43B |
| Year 4 ✦ | Stage 1 | $176.00B | $124.68B | $465.12B |
| Year 5 ✦ | Stage 1 | $194.00B | $126.09B | $591.20B |
| Year 6 | Stage 2 | $217.28B | $129.56B | $720.76B |
| Year 7 | Stage 2 | $243.35B | $133.12B | $853.88B |
| Year 8 | Stage 2 | $272.56B | $136.79B | $990.67B |
| Year 9 | Stage 2 | $305.26B | $140.55B | $1131.22B |
| Year 10 | Stage 2 | $341.89B | $144.42B | $1275.64B |
| Terminal | — | TV=$5869.2B | PV(TV)=$2479.2B (66% of EV) | EV=$3754.8B |
| Intrinsic Value | — | — | EV $3754.8B − Net Debt → Equity / Shares | $510 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (9.00%) to get its present value. After Year 10, FCF grows at the terminal rate (3.0%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $5869.2B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $2479.2B). Enterprise Value = PV of FCFs ($1275.6B) + PV of TV ($2479.2B) = $3754.8B. Subtracting net debt gives equity value of $3788.8B, divided by shares outstanding = $510 per share.
✦ Year-by-year analyst consensus FCF estimates (Base scenario)
Bull Scenario
Stage 1: 22.0% | Stage 2: 13.0% | Terminal: 3.5%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $135.00B | $124.42B | $124.42B |
| Year 2 ✦ | Stage 1 | $168.00B | $142.71B | $267.13B |
| Year 3 ✦ | Stage 1 | $205.00B | $160.50B | $427.63B |
| Year 4 ✦ | Stage 1 | $242.00B | $174.62B | $602.25B |
| Year 5 ✦ | Stage 1 | $278.00B | $184.88B | $787.13B |
| Year 6 | Stage 2 | $314.14B | $192.55B | $979.68B |
| Year 7 | Stage 2 | $354.98B | $200.54B | $1180.22B |
| Year 8 | Stage 2 | $401.13B | $208.85B | $1389.07B |
| Year 9 | Stage 2 | $453.27B | $217.52B | $1606.59B |
| Year 10 | Stage 2 | $512.20B | $226.54B | $1833.13B |
| Terminal | — | TV=$10602.5B | PV(TV)=$4689.3B (72% of EV) | EV=$6522.4B |
| Intrinsic Value | — | — | EV $6522.4B − Net Debt → Equity / Shares | $883 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (8.50%) to get its present value. After Year 10, FCF grows at the terminal rate (3.5%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $10602.5B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $4689.3B). Enterprise Value = PV of FCFs ($1833.1B) + PV of TV ($4689.3B) = $6522.4B. Subtracting net debt gives equity value of $6556.4B, divided by shares outstanding = $883 per share.
🔲 Sensitivity Table
| WACC \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 7.0% | $473 | $507 | $549 | $602 | $669 |
| 7.5% | $428 | $456 | $489 | $529 | $579 |
| 8.0% | $390 | $413 | $439 | $471 | $509 |
| 8.5% | $358 | $377 | $398 | $423 | $454 |
| 9.0% | $331 | $346 | $364 | $384 | $408 |
| 9.5% | $307 | $319 | $334 | $351 | $371 |
| 10.0% | $285 | $296 | $309 | $323 | $339 |
| 10.5% | $267 | $276 | $286 | $298 | $312 |
| 11.0% | $250 | $258 | $267 | $277 | $288 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
📉 Long-Term Price Trend Channel
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
🏦 Comparable Valuation
| Company | P/E (TTM) | EV/EBITDA | P/FCF | Gross Margin | Note |
|---|---|---|---|---|---|
| MSFT (current) | 24.5x | 17.1x | 37.8x | 68.6% | Highest margins; #2 cloud; AI platform leader |
| MSFT (5yr avg) | 30x | 22x | 33x | 68% | Trading below own 5yr avg on P/E; capex depresses P/FCF |
| GOOGL | 28.4x | 28.4x | 51.3x | 59.7% | Search + Cloud #3; AI competition risk |
| AAPL | 31.7x | 24.7x | 30.3x | 47.3% | Premium hardware + services; lower growth |
| AMZN | 29.1x | 14.5x | 144x | 50.3% | AWS #1 cloud; retail margin expansion; capex-heavy |
| META | 26.0x | 15.5x | 34.1x | 82.0% | Highest gross margin; ad monopoly; AI capex ramp |
| ORCL | 27.3x | 25.0x | 52.2x | 67.1% | Cloud infrastructure pivot; OCI gaining share |
💰 Dividend / Distribution Analysis
| Metric | Value |
|---|---|
| Annual DPS | $3.640 |
| Current Yield | 0.93% |
| Consecutive Growth Years | 20 |
| 1-yr DPS CAGR | +9.7% |
| 3-yr DPS CAGR | +10.2% |
| 5-yr DPS CAGR | +10.1% |
| 10-yr DPS CAGR | +9.8% |
| Payout Ratio (DPS/EPS) | 22.8% |
| FCF Payout Ratio | 7.9% |
| Sustainability Verdict | Safe |
Dividend is rock-solid at 22% payout ratio with 20 consecutive years of growth. MSFT generates $71.6B+ FCF vs $27B in total capital returns. Dividend is a small but growing component of total return — MSFT is primarily a capital appreciation story with dividend optionality.
🔮 Analyst Forecast Section
(a) EPS Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $8.05 | — | — | — | Actual |
| 2022 | $9.65 | — | — | — | Actual |
| 2023 | $9.68 | — | — | — | Actual |
| 2024 | $11.80 | — | — | — | Actual |
| 2025 | $13.64 | — | — | — | Actual |
| 2026 | $15.94 | $16.92 | $17.70 | 61 | Estimate |
| 2027 | $16.32 | $19.38 | $21.03 | 59 | Estimate |
(b) Revenue Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $168.1B | — | — | — | Actual |
| 2022 | $198.3B | — | — | — | Actual |
| 2023 | $211.9B | — | — | — | Actual |
| 2024 | $245.1B | — | — | — | Actual |
| 2025 | $281.7B | — | — | — | Actual |
| 2026 | $318.5B | $334.6B | $348.1B | 60 | Estimate |
| 2027 | $352.2B | $386.7B | $417.4B | 58 | Estimate |
(c) Individual Analyst Price Targets
Consensus: Avg $602.59 | Range $392–$675
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| Gil Luria | DA Davidson | Strong Buy | $675 | +72.3% |
| Brent Thill | Jefferies | Buy | $650 | +65.9% |
| Rishi Jaluria | RBC Capital | Buy | $640 | +63.4% |
| Tyler Radke | Citigroup | Strong Buy | $635 | +62.1% |
| Keith Weiss | Morgan Stanley | Buy | $630 | +60.8% |
| Karl Keirstead | UBS | Buy | $625 | +59.5% |
| Mark Moerdler | Bernstein | Buy | $610 | +55.7% |
| Raimo Lenschow | Barclays | Buy | $600 | +53.1% |
| Kirk Materne | Evercore ISI | Buy | $600 | +53.1% |
| Daniel Ives | Wedbush | Buy | $575 | +46.8% |
| Gregg Moskowitz | Mizuho | Buy | $550 | +40.4% |
| Brad Reback | Stifel | Hold | $392 | +0.1% |
(d) Earnings Surprise History
| Quarter | EPS Act vs Est | EPS Beat/Miss | Rev Act vs Est | Rev Beat/Miss | Guidance |
|---|---|---|---|---|---|
| Q2 FY2026 | $5.16 vs $3.88 | +$1.28 ✅ | $81.3B vs $78.8B | +$2.5B ✅ | Raised |
| Q1 FY2026 | $3.72 vs $3.58 | +$0.14 ✅ | $77.7B vs $75.8B | +$1.9B ✅ | Raised |
| Q4 FY2025 | $3.65 vs $3.44 | +$0.21 ✅ | $73.2B vs $71.2B | +$2.0B ✅ | Maintained |
| Q3 FY2025 | $3.46 vs $3.23 | +$0.23 ✅ | $70.1B vs $68.5B | +$1.6B ✅ | Maintained |
💡 Investment Thesis
- Azure + AI = Secular Growth Engine: Azure is the #2 cloud platform globally and the primary distribution channel for OpenAI's frontier models. Cloud + AI revenue is growing 25-30% and represents 38% of total revenue — this segment alone is a $106B business growing faster than most standalone tech companies.
- Copilot Monetization Upside: Microsoft 365 Copilot at $30/user/month represents a massive ARPU expansion opportunity across 400M+ commercial Office users. Even 20% penetration at $360/year = $28B incremental high-margin revenue.
- Recurring Revenue Moat: 60%+ of revenue is recurring subscription (M365, Azure, Dynamics, LinkedIn Premium). Enterprise switching costs are enormous — Microsoft is deeply embedded in workflow, identity (Entra/AD), and collaboration.
- Capital Return Machine: $71.6B FCF in FY2025 despite massive capex; $27.1B returned via dividends ($24.7B) and buybacks ($2.4B). 20 consecutive years of dividend growth. Net cash position of $34B provides downside cushion.
- Bear Case — Capex Overhang: AI infrastructure spending surged from $20.6B (FY2021) to $64.6B (FY2025) — a 3x increase. If AI monetization disappoints, these billions in capex become a drag on returns. Cloud competition from GOOGL/AMZN could compress pricing. Regulatory risk around OpenAI exclusivity.
⚖️ DCF Verdict: Accumulate — Microsoft Corporation (MSFT)
Current price: $391.79 | Analyst Avg PT: $602.59
$232
🔴 Bear
$510
📊 Base
$883
🚀 Bull
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$469 | Begin position |
| Tier 2 — Add | ≤$371 | Add on weakness |
| Tier 3 — Full | ≤$243 | Full allocation |
| Sell Alert | ≥$750 | Above fair value — consider trimming |
How tiers are set: Tier 1 = Base IV × 0.92 (8% discount to base case). Tier 2 = midpoint of Bear & Base IV (building on meaningful weakness). Tier 3 = Bear IV × 1.05 (just above worst-case — maximum margin of safety). Sell alert = Bull IV × 0.85 (15% discount to bull case — above fair value range).
MSFT is an Accumulate at $392, with a Base DCF target of ~$510. The stock has corrected ~29% from its July 2025 all-time high of $555 and now trades at 23x forward FY2027E earnings — reasonable for a mega-cap compounder with 15-20% earnings growth, $34B net cash, and the most defensible AI/cloud franchise in tech.
The AI capex cycle is the key variable: our Base case assumes capex growth moderates from FY2025 peak levels, allowing FCF margin to recover from 25% toward 30%+ by FY2030. The Bear case ($232) prices in a sustained capex overshoot scenario with macro headwinds — current price is well above this level. The Bull case ($813) captures the full Copilot monetization opportunity.
Action: Accumulate below $420. Full position at $380. Trim above $600 (approaching Bull territory). Becomes a Hold above $550.
📂 Current Position Summary
| Metric | Value |
|---|---|
| Shares Held | 30.73 |
| Average Cost Basis | $253.10 |
| Current Market Value | $12,040 |
| Unrealized P&L | $+4,262 (+54.8%) |
| Annual DPS | $3.640/yr |
| Annual Dividend Income | $112/yr |
| Current Yield (at price) | 0.93% |
| Yield on Cost | 1.44% |
| vs Target (~$200K) | $12,040 / $200,000 (6%) |
🔧 Model Notes & Calibration
| Assumption | Rationale / Notes |
|---|---|
| FCF Base | Used normalized $72.8B (avg FY2024 $74.1B + FY2025 $71.6B). FY2025 FCF was depressed by a 45% capex surge ($64.6B) as MSFT builds out Azure AI data center infrastructure globally. Operating cash flow grew 15% to $136.2B — the capex timing drag is the sole reason FCF dipped. Averaging with FY2024 normalizes for capex timing. |
| WACC | Beta 0.88 (adjusted for mega-cap recurring-revenue stability; raw Finnhub beta 1.094 captures recent AI-driven volatility, but 60%+ of MSFT revenue is recurring subscription with enterprise contracts — true business risk is lower). Rf=4.30% (10yr UST Mar 2026), ERP=5.5%. Ke=9.14%. Kd=2.80% pretax (AA+ credit), after-tax 2.30%. We=97.96%, Wd=2.03%. WACC=9.00%. |
| FCF Estimates (Years 1–5) | FY2027–FY2031 FCF derived from analyst consensus revenue estimates × scenario FCF margin. MSFT historical FCF margin: 33.4% (FY2021) → 32.9% (FY2022) → 28.1% (FY2023) → 30.2% (FY2024) → 25.4% (FY2025). Compression driven entirely by capex surge. Base assumes margin recovery to ~30% as capex growth moderates; Bear assumes margin stays compressed at 23-26%; Bull assumes recovery to 32-34% as AI investments mature. Analyst consensus FY2027E rev $386.7B (58 analysts); FY2028E implied ~$437B. |
| Terminal Growth | Base gT=3.0% justified — MSFT has never had negative annual revenue growth in its public history; cloud/AI TAM expansion supports above-GDP growth in perpetuity. Bear gT=2.5% (mature tech platform convergence to GDP). Bull gT=3.5% (AI platform creates new TAM beyond current addressable market). |
| Sanity Check | Base IV ~$510 vs analyst consensus PT $602.59 (−15.4% gap). Within ±20% threshold. The gap reflects: (1) our conservative FCF margin recovery assumptions, (2) analysts embedding Copilot optionality not fully captured in DCF base case, and (3) analyst PTs often using P/E or EV/EBITDA multiples which are less punishing during capex cycles than a pure FCF-based DCF. Model output directionally consistent with Street: current price ($392) is well below Base IV ($510), implying ~30% upside. |
| Key Risks | AI capex may not generate proportional returns if enterprise Copilot adoption is slower than expected; Azure growth could decelerate if cloud optimization/repatriation accelerates; OpenAI exclusivity risk (restructuring to capped-profit model); antitrust/regulatory scrutiny on cloud bundling; China/geopolitical risk affecting global cloud operations. |
Bore Family Office • Analysis generated by Lurch • Not investment advice.