Microsoft's current market capitalization amounts to 1.05 trillion USD - a staggering amount which is circa 5% of the production of the entire United States of America for a year, or shortly said USD GDP per year.
Is Microsoft overvalued? Yes. I think Microsoft should be worth somewhere around 700 billion USD. Microsoft is trading at Price/Sales ratio of 8.34, Price/Book ratio of 10.26 and Price/Earnings of 27.16. According to my opinion, by all these measures Microsoft is significantly overvalued.
Currently, we are at the peak of the current economic cycle. Microsoft is at peak profits and revenue in the short to mid term, at least. When the global economy enters a recession Microsoft's revenue and profits will fall sharply as they did post Dot Com boom in 2001. The market is currently pricing that Microsoft will continue to grow revenue and profits by something like 15-20% a year, which is simply not possible if Microsoft does not enter and disrupt many new industries. Yes, I know Microsoft is in second place in cloud services after Amazon, but still the current environment is exceptionally positive for technology companies and simply unsustainable. It will not last.
The same arguments are valid for all other big five technology companies - Apple, Google, Amazon and Facebook. Only Apple has a more reasonable valuation, and no, this is not only because it is a hardware company. But still big 5 technology companies are overvalued.
In my opinion, the intrinsic value of Microsoft for the next 2-4 years is around 700 billion USD.
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Petar
Vladimirov Posledovich is not liable for any investment losses incurred
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Respectfully yours,
Petar Posledovich
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