Microsoft Corp's Intrinsic Value Based on DCF Analysis and Earnings

Microsoft Corp's intrinsic value, as estimated by the GuruFocus DCF calculator, is $427.75 as of August 4, 2025. The company is fair-valued, with a margin of safety of -22.53%. The calculator follows a two-stage DCF model, using EPS without NRI as the default. The growth stage assumes a growth rate of 20.50% for 10 years, while the terminal stage assumes a growth rate of 4% for 10 years. The discount rate is set at 11%.

Microsoft Corp (NASDAQ: MSFT) has been analyzed using the Discounted Cash Flow (DCF) model by the GuruFocus DCF calculator, which estimates the company's intrinsic value at $427.75 as of August 4, 2025. The company is considered to be fairly valued, with a margin of safety of -22.53% [1].

The DCF model employed by GuruFocus uses Earnings Per Share (EPS) without Non-recurring Items (NRI) as the default parameter, which is based on historical data showing a stronger correlation with stock prices than free cash flow. The model follows a two-stage approach: the growth stage assumes a growth rate of 20.50% for 10 years, and the terminal stage assumes a growth rate of 4% for 10 years. The discount rate used is 11% [1].

Using the traditional DCF model based on free cash flow, the intrinsic value is estimated at $203.21, indicating that Microsoft Corp is significantly overvalued with a margin of safety of -157.92%. This discrepancy highlights the importance of choosing the appropriate valuation method and assumptions when estimating a company's intrinsic value [1].

Key considerations when employing the DCF model include future earnings potential, growth rate, predictability of performance, and the selection of an appropriate discount rate. For companies with rapid growth and consistent performance, the DCF model can provide a reliable valuation. However, for companies with unpredictable performance, such as cyclical businesses, a larger margin of safety should be emphasized [1].

For investors looking to identify undervalued companies, the GuruFocus All-in-One Screener can be a useful tool. By focusing on stocks with a high Predictability Rank that are trading at a discount to their intrinsic value, investors can potentially uncover promising investment opportunities [1].

In summary, while the DCF model is a robust valuation methodology, its accuracy relies on the assumptions and projections made. For Microsoft Corp, the estimated intrinsic value of $427.75 suggests that the company is fairly valued, but further analysis and consideration of other valuation methods may provide additional insights.

References:
[1] https://finance.yahoo.com/news/art-valuation-discovering-microsoft-corps-120953659.html