Has The Recent Pullback In Microsoft (MSFT) Opened A Better Entry Point?

Simply Wall St

Mon, February 16, 2026 at 6:08 PM GMT+9 6 min read

In this article:

•                                       StockStory Top Pick 
  

  MSFT

  -0.13%

Track your investments for FREE with Simply Wall St, the portfolio command center trusted by over 7 million individual investors worldwide.

If you are wondering whether Microsoft is still attractive at current levels or if the recent pullback has opened a better entry point, this article will help you weigh what you are really paying for the stock.

Microsoft recently closed at US$401.32, with returns of a 3.0% decline over 7 days, a 12.7% decline over 30 days, a 15.1% decline year to date and a 1.0% decline over 1 year, compared with gains of 58.8% over 3 years and 77.9% over 5 years.

Recent headlines have focused on Microsoft's ongoing push in areas such as artificial intelligence and cloud services, along with regulatory attention on large tech companies more broadly. Together, these themes help explain why sentiment around future growth potential and risk has been shifting over the last few months.

On our valuation checks, Microsoft scores 5 out of 6 for being assessed as undervalued, giving it a valuation score of 5. Next, we will compare different valuation approaches before finishing with a more practical way to think about what the market might be pricing in.

Microsoft delivered -1.0% returns over the last year. See how this stacks up to the rest of the Software industry.

Approach 1: Microsoft Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company might be worth by projecting its future cash flows and discounting them back to today, so you can compare that value with the current share price.

For Microsoft, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections in $. The latest twelve month free cash flow is about $93.7b. Analyst and extrapolated estimates suggest projected free cash flow of about $264.5b in 2035, with intermediate years such as 2026 at $70.8b and 2030 at $164.8b. Simply Wall St only uses direct analyst inputs for the nearer years and then extrapolates further out to build a full 10 year curve.

Discounting those projected cash flows back to today produces an estimated intrinsic value of about $455.36 per share, compared with the recent share price of about $401.32. In this model, Microsoft appears to be trading at roughly an 11.9% discount to its DCF estimate.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Microsoft is undervalued by 11.9%. Track this in your watchlist or portfolio, or discover 54 more high quality undervalued stocks.

MSFT Discounted Cash Flow as at Feb 2026

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Microsoft.

Story Continues  

Approach 2: Microsoft Price vs Earnings

The P/E ratio is a useful way to think about a profitable company because it links what you pay today to the earnings it is already generating. In simple terms, a higher P/E usually reflects higher growth expectations or lower perceived risk, while a lower P/E can reflect more modest growth expectations or higher perceived risk.

Microsoft currently trades on a P/E of about 25x. That sits below both the Software industry average of about 26.4x and the peer average of about 29.1x, so the stock is priced at a discount to these broad benchmarks. On its own, though, that comparison does not tell you whether the discount is justified by the company’s specific growth outlook, profitability and risk profile.

To address that, Simply Wall St uses a “Fair Ratio” of 44.5x, which is an estimate of the P/E you might expect for Microsoft given factors like its earnings growth, industry, profit margins, market cap and identified risks. Because this Fair Ratio is tailored to the company rather than just the sector, it can be more informative than simple peer or industry averages. Comparing the current P/E of 25x with the Fair Ratio of 44.5x suggests the shares are trading below that company specific yardstick.

Result: UNDERVALUED

NasdaqGS:MSFT P/E Ratio as at Feb 2026

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Start investing in legacies, not executives. Discover our 23 top founder-led companies.

Upgrade Your Decision Making: Choose your Microsoft Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way for you to attach a clear story about Microsoft to the numbers you care about, such as fair value, revenue, earnings and margin assumptions.

A Narrative on Simply Wall St links three pieces together: your view of Microsoft’s business story, a financial forecast built from your assumptions, and the fair value that falls out of those assumptions so you can see how your view translates into a number.

These Narratives live inside the Community page on Simply Wall St, where millions of investors already share their views. You can use them as an easy, visual tool to compare your own fair value with the current share price and decide whether you see Microsoft as closer to a buy, hold or sell for your portfolio.

Because Narratives update automatically when new information such as earnings, news or analyst inputs are added to the platform, your story and fair value stay current without you having to rebuild a model from scratch each time.

For example, one Microsoft Narrative on the platform assigns a fair value of about US$603.22 per share, while another sits closer to US$335.64. This shows how two investors can look at the same company, plug in different views on growth, margins and risk, and end up with very different but clearly explained conclusions about what the stock is worth today.

For Microsoft however we will make it really easy for you with previews of two leading Microsoft Narratives:

🐂 Microsoft Bull Case

Fair value: about US$423.14 per share

Implied undervaluation vs US$401.32: roughly 5.1%

Revenue growth assumption: 10%

Sees Microsoft as a long term beneficiary of AI, with Copilot, Azure AI and cloud based software driving recurring revenue and profitability.

Highlights additional growth drivers in cybersecurity, gaming after the Activision Blizzard acquisition, and potential future areas such as quantum computing.

Flags risks including tougher AI competition, regulatory scrutiny, slower PC related demand and possible margin pressure in Azure, but still anchors on a supportive long term business story.

🐻 Microsoft Bear Case

Fair value: about US$335.64 per share

Implied overvaluation vs US$401.32: roughly 19.6%

Revenue growth assumption: 3.8%

Focuses on pressure in Office and Microsoft 365 from free or cheaper productivity tools and slowing seat growth, which could cap expansion in key software revenue streams.

Sees structural challenges for Windows OEM and Xbox hardware as PC replacement cycles lengthen, mobile and PC gaming gain share and console exclusivity becomes less important.

Acknowledges that cloud, AI, mobile gaming via Activision Blizzard and other segments could offset some of this, but still assumes more moderate growth and a lower fair value anchor.

Together, these two Narratives frame a realistic range for how investors are thinking about Microsoft today, from a more optimistic AI and cloud led story through to a more cautious view that leans on slower growth and product level competition.

If you want to see how other investors are joining the debate or build your own version of the story, Curious how numbers become stories that shape markets? Explore Community Narratives is a simple way to compare views side by side and decide where you personally sit on Microsoft.

Do you think there’s more to the story for Microsoft? Head over to our Community to see what others are saying!

NasdaqGS:MSFT 1-Year Stock Price Chart

_ This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned._

Companies discussed in this article include MSFT.

Have feedback on this article? Concerned about the content? Get in touch with us directly._ Alternatively, email editorial-team@simplywallst.com_

Terms and Privacy Policy

Privacy Dashboard

More Info