Buy Or Sell Microsoft Stock At $425?

Microsoft (MSFT) stock has declined roughly 12% over the last six months and currently trades around $425, well off its October 2025 peak of $542. Investors are worried, and the concern is legitimate: rising capital expenditure is compressing near-term returns. But does that make the stock a sell? We don’t think so. Here is why.

Is the valuation actually stretched?

Against the S&P 500, yes. MSFT trades at a P/S of 10.1 vs. 3.2 for the index, a P/FCF of 44.0 vs. 19.6, and a P/E of 25.6 vs. 23.7. On those numbers, the stock looks expensive. See Microsoft’s valuation metrics. But compared to its own history, the picture changes. MSFT’s three-year average P/E is 36.3. At 25.6 today, the stock is trading at a meaningful discount to where the market has historically been willing to price it. That gap matters.

While Microsoft’s valuation shows a discount to its historical average, the broader software sector presents other…