Microsoft (MSFT 1.13%) has had a terrible start to 2026. It's down more than 20% to start, but it's also off more than 30% from its all-time high. That's not a normal experience for Microsoft, as it has been down 30% or more from an all-time high only once in the past decade.
There has seldom been a better time to scoop up Microsoft shares, and I think its stock price will be much higher in 2027. How much higher? Let's take a look.
Image source: Getty Images.
Microsoft's stock is set to deliver strong returns based on valuation alone
If Microsoft was overvalued when its sell-off began, then this drop is warranted, and it isn't the buying opportunity many investors have made it out to be. Since 2020, Microsoft has traded at an earnings valuation in the mid-30s.
MSFT PE Ratio data by YCharts
One thing to note is that its current valuation of 23.4 times earnings is nearly the same as that of the S&P 500, which trades at 23.6 times earnings. So Microsoft has essentially lost its premium to the market.
In light of Wall Street analyst growth projections and Microsoft's past results, this doesn't make a ton of sense. During its most recent quarter, Microsoft posted solid 17% revenue growth. Next quarter, analysts expect 16% growth, and they expect 15% the quarter after that. For a stock to be growing faster than the market, most investors set the bar at 10% growth. Microsoft is clearly above this threshold, so I think it deserves a premium to the market. But just how much? Let's look at its peers.
NASDAQ: MSFT
Key Data Points
I think the most comparable stocks to Microsoft are Alphabet (GOOG +4.96%) (GOOGL +4.79%) and Apple (AAPL 0.76%), as these are two high-margin, high-quality businesses with strong track records of execution. Alphabet and Apple trade for 27.3 and 32.4 times earnings, respectively. I think a fair valuation for Microsoft is likely between the two at 30 times earnings.
Wall Street projects Microsoft will generate $19 in earnings per share at the end of fiscal year 2027 (ending June 30, 2027). A stock that generates $19 in earnings at a 30 times earnings valuation would be valued at $570 per share.
That represents a 52% upside in just over a year, which makes Microsoft a no-brainer stock to buy right now.
