Microsoft Corporation (MSFT): Trump’s Trade War Could End Badly

For more perspective, the following graph shows how Microsoft’s Windows for PCs is becoming a smaller part of Microsoft’s revenue, and server products and tools are accelerating.

And from a bottom line standpoint, Microsoft’s net income remains healthy as revenues remain strong, as shown in the following chart.

Additionally, Microsoft Corporation (NASDAQ:MSFT) has provided a positive outlook whereby revenue in two of its three segments is expected to grow (Productivity and Business Processes plus Intelligent Cloud, but not More Personal Computing).

Valuation Metrics:

From a price-to-earnings standpoint, Microsoft remains reasonably priced as shown in the following chart (taking the tech bubble era with a grain of salt).

Additionally, a basic discounted free cash flow model suggests Microsoft has some price appreciation potential. Specifically, if we discount Microsoft’s 2016 Free Cash Flow of $25 billion, by its 11.85% weighted average cost of capital and assume a 9.1% 5-year annual growth rate (this is the average estimate of the 8 professional analysts surveyed on Yahoo Finance), and a conservative 3-5% growth rate thereafter, then Microsoft is worth $465.0B to $580.4B after adjusting for outstanding long-term debt (-$60.2B) and cash and short-term investments (+$136.9B). On a per share basis, this amounts to a valuation between $59.76 and $74.61, which gives Microsoft current share price roughly 8% upside versus the midpoint of the range.