With a little delay, here is my analysis from my blog. - I would also like to share it with you.
Microsoft - Long-term quality or overrated hype?
Microsoft is the third-largest position in my portfolio after my ETFs - and with good reason. But will it still be in the future? I have taken a close look at the figures, the market environment, the risks and the potential. And at the end I give you my honest assessment: hold, buy more or sell?
The most important facts in brief:
- Current share price (July 2025): approx. $497
- Valuation: Historically expensive (PER ~38, P/E >13)
- Growth drivers: Cloud, AI (OpenAI), Office 365 subscription model
- Risks: High expectations, geopolitical tensions, regulatory intervention
- Conclusion: Quality share with a price tag - hold, no immediate buy, but savings plan remains exciting
1. fundamentals and valuation - quality has its price
Microsoft is one of the most profitable companies in the world. In the last financial year, sales amounted to $245 billion, the operating margin was 44%, and the bottom line was a profit of over $72 billion. Free cash flow was just under $60 billion.
But: The market has long since recognized this quality. The P/E ratio is ~38, the P/E ratio is over 13. Historically, the P/E ratio was once 20. This means that investors are now paying significantly more for every dollar of profit. The market has a lot of confidence in Microsoft.
And that is precisely the problem: anyone buying now needs confidence that growth will continue. A lot is already priced in.
2 Where does the money come from? - Microsoft's engine room
Microsoft is no longer a Windows company. The traditional business with Office licenses and Windows OEMs is declining. Instead, revenue now comes from three pillars:
- Intelligent Cloud (42% revenue): Azure, servers, databases
- Productivity & Business (33%): Office 365, LinkedIn, Dynamics
- Personal Computing (25%): Xbox, Bing, Surface, Windows
Azure is growing particularly strongly - +33% in the last quarter. Office is also running smoothly thanks to the subscription model. Only the PC business is weakening - logically, the big hardware run is over.
Then there is the new game changer: Artificial intelligence. Microsoft is at the forefront thanks to its billion-euro stake in OpenAI (ChatGPT). Copilot functions in Office, Azure AI services, GitHub Copilot - all of these can generate new revenue streams.
3rd opportunities - what's going really well
- Subscriptions instead of one-off purchases: Over 70% of sales are recurring - predictable and crisis-proof.
- Cloud on course for growth: Azure is clearly the No. 2 behind Amazon AWS - but is growing faster.
- AI leadership: OpenAI partnership and own infrastructure pay off.
- Moat (moat): Office, Windows, Azure - no company just switches it up.
- Endless cash: Microsoft can put billions into innovation every year or buy back shares.
4. risks - where things can get dicey
- Valuation: Microsoft is expensive. Very expensive. If growth falters, share price pressure threatens.
- Regulation: EU, USA - more and more politicians want to rein in Big Tech. Especially for Cloud & Office.
- Competition: Amazon (cloud), Google (workspace, cloud), Apple (chips), Oracle, IBM, Alibaba in China.
- China risk: Azure China only runs via partners, market access could be restricted by politics.
- Macro: Higher interest rates = less investment in IT. Plus currency effects & inflation.
5. DCF & valuation - What is the share really worth?
A conservative DCF model (8% discounting, 2% perpetual growth) arrives at a fair value of $350-380 per share. The market sees it differently - analyst targets are around $500-520.
I say: a lot of fantasy is already priced in. Anyone buying today is speculating that AI, cloud & co. will bring in much more than previously expected. Possible, but not a sure-fire success.
6 Conclusion - What do I do with my Microsoft position?
For me, Microsoft is a clear hold candidate. The company is rock solid, globally positioned, innovative - and I am happy to have it in my portfolio. But:
- Buy more? Not immediately. The valuation is simply too high.
- Sell? No. If you are invested for the long term, stay in.
- Savings plan? Yes, in small tranches. If you buy regularly, you can also take advantage of setbacks.
Personally, I am holding my position, not adding to it at the moment, but keeping the savings plan running. If there are setbacks - due to interest rate fears or regulatory intervention, for example - I am prepared to add more.
Disclaimer: No investment advice. Everyone has to find their own strategy. I share my thoughts and decisions here - no more, but also no less.
