The answer first
Microsoft remains a Full long. The DCF prices segment growth, AI infrastructure, cash taxes, working capital, depreciation, capex, leases, SBC, net debt and terminal reinvestment directly.
Original weighted value, historical: $541.625. Revised active value: $724.80.
Company specific valuation method
Primary: enterprise unlevered free cash flow DCF. Ten annual UFCFs plus terminal value are discounted at scenario WACC. Net debt is deducted and current diluted shares are used.
Cross checks: segment and SOTP logic, normalized owner earnings and FCF, normalized EPS and P/E, EV to EBITA, and reverse DCF. They are not averaged.
Microsoft 365 seats and ARPU, Copilot, Azure consumption and capacity, cloud margin, power, leases, SBC and terminal reinvestment are explicit.
Revised scenarios
| Scenario | Probability | WACC | Terminal growth | Year ten revenue | Year ten EBIT margin | Year ten capex | Target | Return |
|---|---|---|---|---|---|---|---|---|
| Bear | 25% | 9.5% | 2.5% | $640.5B | 39.0% | 15.0% | $275.69 | -42.7% |
| Base | 50% | 8.0% | 3.0% | $899.6B | 48.0% | 14.0% | $638.64 | 32.7% |
| Bull | 25% | 7.0% | 3.5% | $1173.5B | 53.0% | 11.5% | $1346.21 | 179.8% |
Weighted scorecard
| Pillar | Weight | Original | Revised | Delta |
|---|---|---|---|---|
| Business Quality | 30% | 9.9 | 9.9 | +0.0 |
| Management Quality | 15% | 8.3 | 8.3 | +0.0 |
| Industry Tailwind | 15% | 8.8 | 8.8 | +0.0 |
| Valuation and Margin of Safety | 30% | 6.2 | 6.8 | +0.6 |
| Risk and Asymmetry | 10% | 7.0 | 6.0 | -1.0 |
| Conviction | 8.095 | 8.175 | +0.080 |
Valuation changes band. Risk changes only because revised bear downside changes its band.
Primary financial evidence
| FY | Revenue | Operating income | OCF | Cash capex | FCF | Diluted EPS |
|---|---|---|---|---|---|---|
| 2021 | $168.088B | $69.916B | $76.740B | $20.622B | $56.118B | $8.05 |
| 2022 | $198.270B | $83.383B | $89.035B | $23.886B | $65.149B | $9.65 |
| 2023 | $211.915B | $88.523B | $87.582B | $28.107B | $59.475B | $9.68 |
| 2024 | $245.122B | $109.433B | $118.548B | $44.477B | $74.071B | $11.80 |
| 2025 | $281.724B | $128.528B | $136.162B | $64.551B | $71.611B | $13.64 |
| 2026 | $331.839B | $155.237B | $182.935B | $115.948B | $66.987B | $17.95 |
Downloads
Revised initial assessment
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Revised deep teaching report
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Original versus revised
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Formula driven workbook
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Verified workspace
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Revision manifest
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Original initial assessment
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Original deep teaching report
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Original workbook
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Original workspace
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