Microsoft is now cheaper than the April 2025 Tariff crash, yet TTM EPS is up 30%. Huge bargain
u/skilliard7 ·
Reddit — r/stocks
· June 25, 2026 at 15:26
· ⬆ 151 pts
· 💬 104 comments
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Summary
The author argues that Microsoft (MSFT) is undervalued at under 20x forward P/E despite 30% EPS growth, citing strong Azure growth, OpenAI exposure, improving Copilot, custom AI chips, and balanced capex.
Thesis: MSFT could double in 1–2 years as AI monetization ramps and the market reprices the stock.
Quality assessment: Reasonably well-reasoned DD with fundamental metrics and specific catalysts, though anecdotal (Copilot usage) and relies on optimistic AI adoption timelines.
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I had previously sold off Microsoft at $460, but I think they are probably one of the biggest bargains in big tech right now:
- Very favorable exposure to OpenAI(20% revenue sharing agreement and rights to their models). Even if OpenAI keeps burning cash, they are benefitting from their top line revenue growth. When the revenue share agreement expires, OpenAI will likely achieve profitability, at which point Microsoft's ~25% OpenAI stake will be worth a lot.
- Very strong Azure cloud growth
- Enterprise software remains strong.
- Despite the initial flop of Copilot, it's been improving a lot in recent months. Anecdotally, I know of a lot of people across a wide variety of professions that have started using it and are satisfied with the results.
- They are beginning to roll out custom AI chips to compete with Nvidia.
- Capex is well balanced, IMO. Not excessively aggressive like Google or Meta, but still significant enough to maintain growth while avoiding excessive risk. They are saving enough free cash flow to cover dividend and a small amount of buybacks without relying on Debt.
- Shift from fixed cost billing to usage based billing on their AI products will likely result in substantial revenue growth.
- Trading at less than 20x forward P/E despite 30% annual EPS growth.
I can easily see MSFT doubling in value in 1-2 years with how cheap they are right now.
MSFT trades at <20x forward P/E with TTM EPS up 30%, cheaper than during the April 2025 tariff crash. The valuation disconnect (disparity between earnings growth and multiple compression) creates a re-rating opportunity if AI monetization materializes. Accumulate MSFT for medium-term appreciation as the market eventually prices in higher EPS and AI revenue growth. AI spending may not yield near-term returns; capex could drag margins; competition from NVDA/AMZN; macro downturn; OpenAI stake uncertainty.