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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (67470)	11/2/2025 2:01:08 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 67816

Chain of Thought for DCF Valuation of Microsoft Corporation (MSFT) To determine the Discounted Cash Flow (DCF) intrinsic value per share for Microsoft Corporation (MSFT), we utilize a two-stage DCF model. This projects free cash flows (FCF) over a 5-year high-growth period, computes a terminal value assuming perpetual growth thereafter, discounts all to present value using the weighted average cost of capital (WACC), and divides by diluted shares outstanding to arrive at the per-share equity value. Microsoft holds substantial net cash (~$80B as of Q1 FY2026), with negligible net debt, so enterprise value closely approximates equity value. Step 1: Gather Key Inputs Using data as of November 1, 2025 (post-Q1 FY2026 earnings on October 29): Trailing Twelve Months (TTM) FCF: $78.02 billion USD (GuruFocus, as of October 30, 2025; reflects Q1 FY2026 FCF of $25.7B, up 33% YoY). High-Growth Rate (Years 1-5): 19% annually. This aligns with Finbox analyst consensus for unlevered FCF growth averaging 19.0% through FY2030, fueled by 16% Q1 revenue growth ($65.6B), Azure's 33% expansion, and AI/Copilot momentum, despite $20B+ quarterly CapEx. Terminal Growth Rate: 3%. Aligned with long-term GDP/inflation norms for a diversified tech giant. Discount Rate (WACC): 8.5%. Averaged from estimates (ValueInvesting.io: 8.6%, Finbox: 9.5%), factoring in beta ~0.9, risk-free rate ~4%, and equity risk premium ~5%. Outliers like GuruFocus 2.72% excluded. Shares Outstanding: 7.46 billion (diluted weighted-average for Q1 FY2026, derived from net income $27.75B / diluted EPS $3.72). All in USD; projections computed via Python for precision. Step 2: Project Future Free Cash Flows Base FCF0 = $78.02B. Grow at 19% for 5 years: Year 1: $78.02B × 1.19 = $92.84B Year 2: $92.84B × 1.19 = $110.48B Year 3: $110.48B × 1.19 = $131.48B Year 4: $131.48B × 1.19 = $156.46B Year 5: $156.46B × 1.19 = $186.18B Step 3: Calculate Terminal Value End of Year 5: FCF6 = $186.18B × 1.03 = $191.77B. TV = $191.77B / (0.085 - 0.03) = $191.77B / 0.055 = $3,486.71B. Step 4: Discount to Present Value Discount at WACC = 8.5%: PV(Year 1 FCF) = $92.84B / 1.085¹ ˜ $85.57B PV(Year 2 FCF) = $110.48B / 1.085² ˜ $93.85B PV(Year 3 FCF) = $131.48B / 1.085³ ˜ $102.51B PV(Year 4 FCF) = $156.46B / 1.0854 ˜ $111.49B PV(Year 5 FCF) = $186.18B / 1.0855 ˜ $125.68B Sum of PV(FCFs) = $519.07B PV(TV) = $3,486.71B / 1.0855 ˜ $2,318.82B Enterprise Value (EV) = $519.07B + $2,318.82B = $2,837.89B. Step 5: Derive Per-Share Value Intrinsic Value per Share = EV / Shares = $2,837.89B / 7.46B = $380.41. Step 6: Interpretation and Sensitivity Current stock price (Oct 31 close): $517.81. Implies ~26% overvaluation, consistent with post-earnings reaction: Q1 beat on revenue/EPS but weighed by high CapEx guidance ($70-75B FY2026) and AI capacity constraints; broader DCFs vary (e.g., ValueInvesting.io ~$420, Simply Wall St ~$360). Sensitivity: If growth = 17%, value ~$340; if 21%, ~$425. If WACC = 8.0%, value ~$410; if 9.0%, ~$355. FCF trajectory depends on Azure margins (now 45%) and AI ROI—track Q2 for updates. This model offers directional insight; customize via spreadsheet for scenarios. DCF highlights Microsoft's cash machine status amid cloud/AI dominance.