Microsoft MSFT Stock is Cheap - Is it a BUY for You?

Sven provides a comprehensive analysis of Microsoft, contrasting its historical performance as a 'cash-printing' software machine with its current trajectory as an AI infrastructure giant. He highlights that while the company is currently growing revenues at 15% and net income at 20%, it is entering a massive investment cycle. Microsoft plans to spend roughly $190 billion on capital expenditures (CapEx) for AI, which is double its current annual profit. Sven argues that this shift necessitates a change in how investors view the company's valuation, as future depreciation and amortization costs will significantly weigh on net income starting in 2027 and 2028.

Sven outlines three valuation scenarios. In his base case, he expects a 10-11% annual return if Microsoft maintains 15% growth. In a best-case scenario with 20% growth, the stock could triple by 2035, yielding a 16% annual return. Conversely, a 'margin of safety' or worst-case scenario—driven by competition or a recession—could see growth drop to 5%, potentially leading to a significant price correction. Sven suggests that at the current price (around $390 at the time of the analysis), the stock is fairly priced for a 10% return, but emphasizes that the risk profile has increased due to the capital-intensive nature of the AI race.