Microsoft Corporation

MSFT

TechnologySoftware - InfrastructureNASDAQ

$371.04

Market Cap: $2.76T

Fair Value

$950.22

Market Price

$371.04

Upside / Downside

+156.1%

Verdict

Undervalued

Using an unlevered Free Cash Flow to Firm (FCFF) model, we project Microsoft Corporation's cash flows over 10 years with analyst estimates for the first 3–5 years, fading toward long-term GDP growth for the remaining years with line-by-line expense modeling. Revenue is projected revenue growing from 16.3% to 4.8% annually, with expenses (COGS, SG&A, R&D) held at historical ratios. Depreciation is computed from a vintage matrix based on a 5-year useful life. Working capital is modeled using historical turnover days (DSO 85, DPO 108, DIO 13). At a 9.1% WACC with mid-year discounting, the terminal value (83% of enterprise value) is derived by applying the industry peer median EV/EBITDA multiple of 25.9x to Year 11 EBITDA. After subtracting net debt, the equity value implies a fair price of $950.18 per share, suggesting MSFT is undervalued by 156.1% at the current price of $371.04.

FCFF Present Value Calculation

WACC

9.12%

3% – 20%

EV/EBITDA Exit Multiple

25.87x

1x – 40x

Forecast Period

5 Yrs

+ Terminal Year

Adjust parameters to explore scenarios. Changes are for exploration only and do not affect saved valuations.

Currency: USD Millions

	2026	2027	2028	2029	2030	2031	2032	2033	2034	2035	Terminal
Profit Before Tax	137,765	158,977	185,127	219,465	270,729	303,175	334,062	362,092	385,968	404,483	414,595
(−) Net Interest	3,544	4,089	4,762	5,645	6,964	7,798	8,593	9,314	9,928	10,404	10,664
(+) D&A	36,329	42,508	49,621	57,846	65,365	72,703	85,074	98,169	111,405	123,858	126,954
EBITDA	177,637	205,574	239,509	282,955	343,058	383,676	427,729	469,575	507,301	538,745	552,213

(−) Tax	22,533	26,002	30,279	35,895	44,280	49,587	54,639	59,224	63,129	66,157	—
(−) CapEx	51,519	59,451	69,230	82,071	101,242	113,376	124,926	135,409	144,337	151,261	—
(−) ΔWC	6,707	7,672	9,458	12,419	18,541	11,735	11,171	10,138	8,635	6,696	—
Free Cash Flow (FCF)	96,879	112,449	130,542	152,569	178,994	208,978	236,993	264,805	291,200	314,631	—

Peers' EBITDA Multiple											25.9x
Terminal Value											14,285,757
WACC / Discount Rate	9.12%

Timing of FCF (mid year)	0.5	1.5	2.5	3.5	4.5	5.5	6.5	7.5	8.5	9.5	5
Present Value of FCF	92,742	98,651	104,952	112,409	120,856	129,309	134,387	137,609	138,677	137,313	5,968,453

Enterprise Value	7,175,358
Projection Period	1,206,905	16.8%
Terminal Value	5,968,453	83.2%

(−) Current Net Debt	81,942
Equity Value	7,093,416
(÷) Outstanding Shares	7465M
Fair Price	$950	+156.1%

Sensitivity Analysis

WACC \ EV/EBITDA Exit Multiple	21.9x	23.9x	25.9x	27.9x	29.9x
7.1%	$981	$1055	$1130	$1204	$1279
8.1%	$900	$968	$1036	$1103	$1171
9.1%	$827	$888	$950	$1012	$1074
10.1%	$760	$816	$873	$929	$986
11.1%	$699	$751	$803	$854	$906

Current price: $371.04. Green = undervalued, Red = overvalued.

Based on default parameters

Methodology

This is an unlevered Free Cash Flow to Firm (FCFF) model with a 10-year projection period. Revenue is projected using analyst consensus estimates for the first 3–5 years, then gradually fading toward long-term GDP growth (~3%) for the remaining years. Expenses, D&A, and working capital follow the same line-by-line approach as the 5-year variant. The terminal value is calculated by applying the industry peer median EV/EBITDA multiple to the projected Year 11 EBITDA.

The longer 10-year horizon reduces the weight of the terminal value in the total enterprise value, making the model less sensitive to the exit multiple assumption. This approach combines the advantages of detailed FCFF modeling with a market-anchored exit, providing a more robust valuation for companies where long-term fundamentals are expected to converge toward industry norms. The sensitivity matrix shows how fair value changes across different WACC and EV/EBITDA multiple scenarios.

Microsoft Corporation