MSFT is a hold, not a buy, at current prices: $524 against his $447 discounted-cash-flow fair value makes it slightly and very marginally overvalued, and he lowered his rating to hold two weeks ago on valuation, with the upcoming earnings release raising risk without enough reward. He owns shares bought around $400 this year, won't sell, won't buy before results, and may change his mind afterward. Long term he expects EPS growth closer to 20% than analysts' roughly 16%.

Microsoft is scheduled to announce its quarterly financial results after the markets close on October 28, 2026. Investors are asking me if this stock represents a buying opportunity before the company delivers this major update to investors.

I will also tell you about the things I will be watching regarding Microsoft. This includes my desire to see continued growth in paid subscriptions to Microsoft 365, as the company announced that it increased to 30 million in its most recent completed quarter.

I also want to see continued development and adoption of the company's own chips. Large cloud companies , including Alphabet, Amazon, Microsoft, and Meta, are investing to create their own chips, but Microsoft and Meta lag behind Alphabet and Amazon in developing, adopting, and selling these chips.

I want to see Microsoft's chip business accelerate its growth and become a more important part of its internal operations. I also want to hear something about what they are planning regarding the next generations of these chips.

I think this will be an important part of their work in the future. This will help them reduce computing costs, as this will be a very important factor.

I also want to hear about their backlog of orders . Remember that they had hundreds of millions, or even more than $500 in order book. I want to see that number increase and diversify.

Remember that one of the biggest risks facing Microsoft is its close relationship with OpenAI and the risk of customer concentration, where a large part of their order history is linked to only one customer .

Therefore, I want to see that number increase and expand to include other entities.

I'm also eager to hear their spending plans and capital expenditures for fiscal year 2027. They have hinted that they will remain positive cash flow this year, and may be the only cloud company to achieve positive cash flow this year.

So, I want to hear more about how much they can spend while maintaining a positive cash flow .

Microsoft shares have seen a rise recently. Do you remember when it dropped to low levels, reaching as low as $350 per share? Well, today it is trading at $524. And of course, I am happy about that.

I bought Microsoft shares earlier this year when they dropped to around $400, adding my stake in February at approximately the $400 level .

Also, Microsoft was rated as an excellent buy earlier this year, but two weeks ago I lowered its rating to "hold" because I felt the valuation had become too high . October 5th was the last time I evaluated the company, and I rated it as a "hold" .

Looking ahead in the long term, analysts who follow Microsoft expect the company's earnings per share to grow by about 16% over the next few years.

As for me, I think this number is lower than reality. I believe that Microsoft's earnings per share growth will be closer to 20% rather than 15%. They are developing these data centers, and once they are built, there are customers waiting to use them.

This in turn drives earnings per share growth amid the sector's significant growth .

Microsoft's profits typically rise at a faster pace than its revenues because it operates a business model that is less asset-based. However, given its massive investments in artificial intelligence capabilities, the recent trend has been relatively stable in terms of operational leverage.

In the most recent quarter , which they announced on July 29, revenues reached 90 billion, an increase of 18% over the same period last year, and their operating income also rose by 18%.

Compared to other major cloud computing companies, Microsoft's revenue growth is the slowest.

Microsoft's AI business is growing more than 40% faster than Amazon's , and is among the fastest-growing AI services companies compared to Alphabet. These two companies are the fastest growing, while Amazon remains the leader in terms of the overall size of its AI business.

Microsoft stock is trading at a forward price-to-earnings ratio of 22.1 . This is less than the average price at which the stock has traded according to this valuation metric. In recent weeks, investors have become more enthusiastic about Microsoft compared to its peers among major cloud computing companies .

Microsoft may be the only one of these giants to achieve positive free cash flow in 2027. But Microsoft encouraged investors and eased some of their concerns by telling us it would achieve positive cash flow throughout its 2027 fiscal year.

Today I also updated my discounted cash flow assessment for Microsoft in preparation for recording this video, and I calculated a fair value for the stock of $447. Remember that to make this estimate, I calculate the amount of free cash flow I expect the company to generate from today to the very distant future, and I discount those cash flows using the weighted average cost of capital, which incorporates the capital asset pricing model and the debt and equity weights that the company owns.

After performing those calculations, and comparing them to the current market price of $524, Microsoft stock appears to be overvalued slightly, and very marginally , according to my discounted cash flow assessment .

Therefore, I mentioned that I last reviewed Microsoft on October 5th, classifying it as a " hold" option, not a great buy opportunity at the moment. This takes into account the upcoming earnings release, which increases the risks for investors.

I always look at the risk versus the reward. Therefore, when the risks are high, the potential return must be even higher to compensate for those increased risks. And I don't see that at Microsoft at the moment, at current market prices.

Now, I own Microsoft shares. I am not interested in selling my shares. I am also not interested in buying before the earnings are released. However, after evaluating those results, I might change my mind.

This is one of the best and most profitable companies in the world, and it is at the forefront of artificial intelligence technology. It is not the leading company, but it is at a very advanced level .

It actively participates and achieves significant growth in the entire ecosystem.