Microsoft (NASDAQ: MSFT) closed at a record $543.45 on October 13, marking a significant milestone for the tech giant before pulling back slightly to around $530.
The company recently wrapped up fiscal 2026 with strong headline numbers, posting 22% growth in adjusted earnings per share for the year ended June 30.
Revenue for fiscal 2026 climbed 18% to $331.8 billion, while operating income rose 21% to reach $155.2 billion for the full year.
Non-GAAP adjusted earnings per share, which strip out the effect of Microsoft’s investments in OpenAI, increased 22% to $17.28 for the fiscal year.
The pace of growth remained consistent throughout the year, with adjusted earnings per share rising 23% year over year in both the first and fourth quarters of fiscal 2026.
At the current share price of roughly $530, Microsoft trades at approximately 31 times its fiscal 2026 adjusted earnings, a steep valuation relative to the broader market.
The S&P 500 currently trades at about 26 times reported earnings, meaning investors are paying a meaningful premium to own shares of Microsoft at current levels.
That premium is harder to justify as management’s own guidance for the September quarter points to a slowdown in operating income growth, even as capital spending continues to surge.
Microsoft is scheduled to report fiscal first-quarter 2027 results after market close on October 28, covering the three months ended September 30, 2026, which will offer greater clarity on its near-term trajectory.
One valuation framework applied to the stock uses Microsoft’s adjusted earnings of $17.28 per share and applies a price-to-earnings multiple of around 27, arriving at a fair buy price of approximately $465 per share.
That figure sits roughly 12% below where the stock currently trades, reflecting concern that slowing growth and rising capital expenditures are not yet fully priced into the market’s expectations.
Free cash flow dipped during the last fiscal year even as Microsoft ramped up capital spending significantly, raising questions about near-term returns on those investments.
The tension between strong historical earnings growth and forward-looking headwinds makes the stock’s current valuation a difficult one for value-conscious investors to accept at face value.
Until the share price retreats to a level that better accounts for decelerating growth and rising costs, the risk-reward profile remains skewed against new buyers entering at today’s prices.
