Microsoft (MSFT -3.24%) has typically been a safe tech stock to own. This year, however, has been a particularly volatile one for the tech company. Microsoft started the year in a tailspin as concerns about artificial intelligence (AI) weighed on not just its stock but on software stocks as a whole, amid fears that AI would diminish the need for subscriptions.
Recently, the market appears to be rethinking that narrative, as Microsoft shares have been flying higher after the company reported strong quarterly earnings. The stock appears to be on a stronger footing of late, and its valuation may not be nearly as attractive as it was even a month ago. Is it still a good time to buy Microsoft's stock, or are investors better off waiting for a dip in its price?
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Microsoft's stock is trading below its five-year average earnings multiple
While Microsoft may not be the dirt cheap stock it was earlier in the year, its valuation still isn't all that high given how much investors have been paying for it in the past. Over the past five years, it has traded at an average price-to-earnings multiple of 32, and at around 27 right now, it's well below that today.
MSFT PE Ratio data by YCharts
The big question, however, is whether it was overvalued to begin with. The company typically generates double-digit growth, but whether that's enough to justify paying more than 30 times earnings is debatable. Many stocks have been trading at elevated levels in recent years, and Microsoft has been no exception to that.
What it may come down to is expectations for the company's future growth and how much of a boost investors expect the business to get from artificial intelligence (AI).
NASDAQ: MSFT
Key Data Points
Is Microsoft stock a good buy right now?
In its most recent quarterly earnings report, Microsoft gave investors many reasons to be optimistic about its future growth prospects. Azure hit $100 billion in revenue for the first time in a full fiscal year, with its growth rate rising to 43% in the fourth quarter. Microsoft 365 Copilot also appears to be winning over customers, hitting 30 million paid seats. CEO Satya Nadella says this is indicative of "the confidence customers are placing in us to power their AI transformation."
While the tech stock may be a bit more expensive than it was earlier in the year, I think it still offers excellent value and may be an underrated AI stock to own. For long-term investors, Microsoft can be a good buy, even at its current price.
