Microsoft Stock At $370: Opportunity Or Trap?

Forbes

17-04-2025

WEST BENGAL, INDIA - 2024/12/11: In this photo illustration, a Microsoft Azure logo is seen ... More displayed on a smartphone with a Microsoft logo in the background. (Photo Illustration by Avishek Das/SOPA Images/LightRocket via Getty Images)
The current period presents concerns for broader markets, which inevitably create challenges for Microsoft (NASDAQ:MSFT). Growing economic anxieties in the United States, fueled by the implementation of tariffs and an escalating trade war, are fostering a generally unfavorable market climate. While Microsoft's stock has not been immune, declining from nearly $450 in January to around $370, its drop has been less severe than some other tech stocks. This relative resilience can be attributed to Microsoft's limited exposure to China (reportedly low-single-digits contribution to sales) and its focus on the software and cloud side of its business, offering some insulation from global trade tensions. Separately see – ASML Stock To $400?
The question now is whether to buy MSFT stock at $370. We think so. Our positive outlook is based on a comprehensive analysis comparing Microsoft's current valuation against its recent operating performance, as well as its present and historical financial standing. This assessment, which considers key parameters such as Growth, Profitability, Financial Stability, and Downturn Resilience, reveals that Microsoft possesses a very strong operating performance and a robust financial condition, as will be detailed further. That said, if you seek upside with lower volatility than individual stocks, the Trefis High-Quality portfolio presents an alternative - having outperformed the S&P 500 and generated returns exceeding 91% since its inception.
Going by what you pay per dollar of sales or profit, MSFT stock looks expensive compared to the broader market.
Microsoft's Revenues have seen notable growth over recent years.
Microsoft's profit margins are considerably higher than most companies in the Trefis coverage universe.
Microsoft's balance sheet looks very strong.
MSFT stock has seen an impact that was slightly better than the benchmark S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on MSFT stock? Our dashboard How Low Can Microsoft Stock Go In A Market Crash? has a detailed analysis of how the stock performed during and after previous market crashes.
In summary, Microsoft's performance across the parameters detailed above are as follows:
Given Microsoft's very strong performance across key parameters, the stock presents an attractive investment opportunity. While its valuation may appear high when compared to the broader market, Microsoft's current trailing price-to-earnings (P/E) ratio of 30x is actually lower than its three-year average of 33x. Coupled with the continued robust growth expected from its cloud offerings, Microsoft appears to be a compelling buying opportunity for long-term investors at the current levels. Although near-term volatility related to ongoing tariffs does pose a risk, for investors with a time horizon of 3 to 5 years, we believe MSFT is a sound stock to buy.
Not too happy about the volatile nature of MSFT stock? The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
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