Why Are They Pumping Microsoft?

Cheaper Ain't Cheap

I’m always skeptical when I hear a chorus of analysts all pushing investors to buy the same stock.

This year’s darling is Microsoft $MSFT.

Sometimes they are right, and I’m wrong. That was certainly true with Google $GOOG last year. “Alphabet” shares are up 60% in the last year, adding over $1.5 trillion to its market cap, and making co-founder Larry Page (who retired nearly a decade ago) the world’s second richest man at $257 billion. These numbers are silly, but to put it in perspective former Microsoft CEO Steve Ballmer, who kept most of his money in his company’s stock, now sits at 11^th with “just” $146 billion.

That last may have something to do with calling Microsoft a “core winner” in AI. Google is suddenly worth more, at $3.8 trillion to $3.56 trillion. But does that make Microsoft “undervalued” when it’s trading at 34 times earnings and 13 times revenue, which came in at $281 billion last year?

The pumping comes amidst reports that Microsoft is about to lay off over 20,000 people this month. That’s nearly 1 Microsoftie in 10 getting the boot, with the same excuse as the other Czars. They want to “flatten” management layers (you’re either a big chief or an Indian) and put more money into “AI” (whatever they mean by that these days).

For some reason, there’s nothing an analyst likes more than to see other people lose their jobs. Misery loves company.

The Case for Microsoft

Start with a full disclosure. I bought 100 shares of Microsoft at about $55/share for my retirement account a decade ago. Its recent price is $478/share.

Microsoft today has what everyone wants to see in an AI company, fiscal discipline. It had $136 billion in operating cash flow for its 2025 fiscal year, which ends in June for some reason. That means it can handle an enormous capital budget, which could top $140 billion this year. Long term debt is just $35 billion. That means it can get more debt at super-low prices, like 5.25%.

All that sounds great but that’s not the point, my friend. The point is that Microsoft dominates the world of “enterprise software,” which now means cloud software. Windows and Office are becoming AI systems with what Microsoft calls “Co-Pilot.” Unlike the case with OpenAI’s ChatGPT, Microsoft is getting paid, more than doubling its take from those applications when Co-Pilot is added.

How good is Co-Pilot? It’s kind of meh. But most of Microsoft’s software is kind of meh, and meh is good enough for most enterprises. We’re talking about an 80% share in enterprise productivity. That’s like IBM’s share of the mainframe market in its heyday of the 1960s.

The Case Against Microsoft

he case against Microsoft is simple, and it’s a case against all stocks.

This shit has gotten expensive. You may have missed the memo but historically stocks trade at 15-20 times earnings. They’re now extremely overvalued at 29 times earnings. That sounds extreme but remember the number has only been below 15 once in this century, and that was in 2011. With the average stock trading at 29, however, 34 looks reasonable. Google is now trading at 31 times earnings, Amazon at 34, and Apple at 35.

These numbers are now stable. Amazon, Microsoft, and Apple are all up less than 10% over the last year. Big Tech, as the Cloud Czars are now called, is no longer the “new hotness.” That honor goes to semiconductor stocks like Nvidia, Broadcom, and Advanced Micro Devices, all of which have left the Czars in the dust lately.

So, what’s the bottom line here? It sounds silly, but I think it’s what analysts used to call a “flight to quality.” Stable, steady growth is now in, especially when you can do it at scale, especially when you have a virtual monopoly in a key space, especially when that space is related to AI, which is what the market is all about.

Microsoft is a cheap stock if you believe AI is going to the Moon. I’m not selling, but I’m not buying either, because a crash is still coming and I’m turning 71 next week.