MSFT

We rate MICROSOFT CORP (MSFT) as a Hold with a composite score of 54.4/100 at a current price of $387.89. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in stability (80th percentile) and quality (61th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (28th percentile) and value (57th percentile) tempers our overall conviction. We assign a Wide Moat rating (71/100), Low uncertainty, and Exemplary capital allocation.

Key items to watch: sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

MICROSOFT CORP holds a top-quartile position (#0 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 54.4/100 places it at rank #1348 in our full 7,333-stock universe. As a mega-cap company with a $3.6T market capitalization, MICROSOFT CORP benefits from significant scale, distribution networks, and brand recognition that smaller competitors cannot easily replicate.

Revenue is growing at 24%, though momentum at the 59th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 68% (+8.9pp vs sector) narrow to operating margins of 47% (+43.7pp vs sector) and net margins of 41.8%, yielding a gross-to-net conversion rate of 61%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $387.89, MICROSOFT CORP is trading near fair value based on current fundamentals. Our value factor score of 57/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 22.6x (roughly in line with the sector median of 23.7x), EV/EBITDA of 18.4x (at a premium), P/B of 7.5x, P/S of 9.5x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Low uncertainty rating to MICROSOFT CORP. The company exhibits strong financial stability with a beta of 0.88, conservative leverage (10% D/E), and a stability factor in the 80th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

We identify no major risk factors at this time. The company's stability factor sits at the 80th percentile with quality at the 61th percentile, both of which support our low-risk assessment. The absence of material leverage, profitability, or volatility concerns reduces the likelihood of a permanent capital loss scenario.

Key risk mitigants include: healthy gross margins of 68% provide a buffer against cost pressures; conservative leverage (10% D/E) limits balance sheet risk; above-average stability (80th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate MICROSOFT CORP's capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 33.4%, disciplined leverage (10% D/E), best-in-class net margins of 41.8%. Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — MICROSOFT CORP meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. The company returns capital via a 0.70% dividend yield, and the combination of 19.6% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, MICROSOFT CORP receives a Hold rating with a composite score of 54.4/100 (rank #1348 of 7,333). Our quantitative framework assigns a Wide Moat (71/100, trend: stable), Low uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 57/100.

Our analysis supports a neutral stance on MICROSOFT CORP. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.