Is Microsoft Stock Overvalued at New All-Time High?

Microsoft's stock price has risen 18% this year, reaching a new all-time high. The business has growth opportunities, particularly in AI, but its high valuation of 38 times trailing earnings makes it expensive. Investors should consider waiting for a dip in price before adding the stock to their portfolio, as the current valuation does not justify the growth rate.

Microsoft Corporation (NASDAQ: MSFT) has reached a new all-time high, with its stock price climbing 18% this year to hit 499.32 USD [1]. This remarkable performance underscores the company's robust growth prospects, particularly in the AI sector. However, the stock's high valuation of 38 times trailing earnings raises concerns among investors.

The tech giant's stock has benefited from an 11.81% total return over the past year and impressive 18.11% gains in the last six months [1]. Microsoft's strong performance is driven by its cloud computing business and innovative product offerings, generating a healthy 69% gross profit margin [1]. The company's Azure cloud service experienced a 35% growth in constant currency during the latest quarter, highlighting its growing influence in the tech sector [1].

Microsoft's AI transformation is no longer theoretical; it's a tangible, scalable monetization engine. The company's AI revenue run rate exceeded $13 billion, up 175% year-over-year, underscoring the depth of its AI integration [2]. This synergy across Azure, Microsoft 365, and Dynamics 365 is reflected in the company's operating income rise of 17% to $4.6 billion [2]. Despite the significant AI capex, the returns are compounding, setting the stage for future growth.

However, Microsoft's high valuation of 38 times trailing earnings raises questions about whether the stock is priced appropriately for its growth rate. At current stock prices of around 350 USD as of June 2025, the company trades at a P/E ratio of 28x, which is lower than peers like Amazon (35x) and Alphabet (29x) [2]. This discounts the company's AI-led growth trajectory, suggesting that the stock may be undervalued.

Investors should consider waiting for a dip in price before adding Microsoft to their portfolio. The current valuation does not fully justify the company's growth rate. While Microsoft's AI-driven revenue streams are still in early innings, the stock trades at a discount to peers. The company's ability to scale Azure AI capacity and integrate Copilot across platforms reduces competition risks, and its margin tailwinds should expand further as AI revenue scales.

In conclusion, Microsoft's stock has reached a new all-time high, driven by its AI revolution. However, the high valuation of 38 times trailing earnings calls for caution. Investors should consider waiting for a dip in price before adding the stock to their portfolio, as the current valuation does not fully justify the company's growth rate.

References:
[1] https://www.investing.com/news/company-news/microsoft-stock-reaches-alltime-high-at-49932-usd-93CH-4117656
[2] https://www.ainvest.com/news/microsoft-ai-revolution-underappreciated-synergies-fuel-growth-era-2506/