Introduction: Why the Microsoft (MSFT) PE Ratio Matters to Investors
The MSFT PE ratio reveals how much you pay today for each dollar of Microsoft's earnings. It's more than just a number; it's a critical tool for every investor.
- A Major Assessment Gauge: It helps investors spot whether the stock is overvalued or undervalued compared to its peers and its own historical performance.
- Portfolio Impact: Shifts in the MSFT PE ratio can signal whether it's time to buy, hold, or trim your position in one of the world's largest technology stocks.
What is the MSFT PE Ratio? A Simple Definition
The Price-to-Earnings (P/E) ratio is calculated as:
P/E Ratio = Current Share Price / Earnings Per Share (TTM)
As of June 16, 2025, the MSFT PE Ratio (TTM) is 37.03.
A high PE ratio often implies that investors expect high future growth, while a low PE ratio might suggest the stock is undervalued or facing earnings challenges.
Also Read: Boeing PE Ratio (BA): Current & Historical DataComparing MSFT PE Ratio vs. Tech Giants: Who’s Overvalued?
| Company | PE Ratio (TTM) | Data As Of |
|---|---|---|
| Microsoft (MSFT) | 37.03 | Jun 16, 2025 |
| Apple (AAPL) | 30.90 | Jun 13, 2025 |
| Alphabet (GOOG) | 19.60 | Jun 13, 2025 |
| Amazon (AMZN) | 34.59 | Jun 13, 2025 |
| NVIDIA (NVDA) | 45.73 | Jun 13, 2025 |
Historical MSFT PE Ratio Trends: How Valuation Has Evolved
Microsoft's average PE ratio over the last decade (2015-2024) is approximately 31.25. The chart below illustrates the significant fluctuations, with a notable peak in 2017 and a dip in 2018, reflecting changing market sentiment and company performance.
| Year (as of Dec 31) | PE Ratio |
|---|---|
| 2015 | 34.82 |
| 2016 | 26.46 |
| 2017 | 54.08 |
| 2018 | 22.13 |
| 2019 | 26.18 |
| 2020 | 31.92 |
| 2021 | 34.78 |
| 2022 | 26.12 |
| 2023 | 33.62 |
| 2024 | 33.81 |
5 Major Drivers Affecting Microsoft's PE Ratio
-
Revenue Growth & Earnings Surprises
Q3 FY2025 revenue hit $62.7 billion (+14.8% YoY), with EPS at $2.45 versus a $2.32 consensus. Consistent "beat-and-raise" cycles often push the PE ratio higher.
-
Profitability of Cloud & Windows Segments
The operating margin for Azure grew to ~36% in Q3 FY2025, up from 33% a year prior. Expanding margins in key segments justifies a premium PE valuation.
-
Interest Rates & Market Sentiment
With the Fed's terminal rate near 5.25%, every 0.25% hike can trim 1-1.5 points from a large-cap PE. Shifts between risk-on and risk-off sentiment increase PE volatility.
-
Share Buybacks & Dilution Impact
An authorized $100 billion share buyback program for 2025 reduces the outstanding share count by ~2% annually, which supports a higher PE ratio.
-
Shaping Macro Trends (AI)
An $80 billion investment in AI for 2025 is fueling adoption of Azure and Copilot. Global digital transformation budgets are growing 18% YoY, providing a strong tailwind.
What a High or Low MSFT PE Ratio Means for Your Portfolio
- High PE (>40): Indicates the market is pricing in very strong future growth. Investors should be wary of any earnings miss, which could trigger a sharp correction.
- Mid-Range PE (30–40): Represents healthy growth expectations with a more balanced risk-reward profile. This is MSFT's current range.
- Low PE (<30): Could signal a potential buying opportunity if the company's fundamentals remain strong, or it could indicate underlying problems.
Will the PE Ratio of Microsoft Increase or Fall? Analyst Forecasts
Analyst opinions are mixed, reflecting different views on growth moderation and AI potential:
- Bearish/Neutral View (D.A. Davidson): Sees conservative enterprise spending and moderating AI capital expenditures, suggesting the PE could drift down to ~32 by year-end (based on a $425 price target).
- Bullish View (Street Consensus): The average analyst price target of $519.56 implies a future PE ratio of ~40.2 (based on a projected EPS of $12.94), indicating continued optimism.
- Forward PE (33.23): The current forward PE suggests the market is pricing in an 8-10% earnings growth for 2026.
FAQs: All You Need to Know About Microsoft PE Ratio Data
Q: How frequently is the PE ratio updated?
A: The PE ratio is updated daily. It changes with the stock's closing price and is recalculated quarterly when new Trailing Twelve Months (TTM) earnings are released.
Q: What is Forward PE?
A: Forward PE is the current share price divided by the estimated earnings per share for the next 12 months. For MSFT, the forward PE is currently 33.23.
Q: Is a high PE ratio always bad?
A: No, context is crucial. High-growth companies, especially in the tech sector, often trade at high PE ratios because investors are willing to pay a premium for expected future earnings growth.
Q: Should I compare PE ratios across different industries?
A: It's generally not recommended. PE ratios are most useful when comparing companies within the same sector (e.g., tech vs. tech), as different industries have vastly different growth prospects and capital structures.
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