Buy Microsoft Stock Now, or Wait for a Pullback?

Core Viewpoint - Microsoft has experienced a significant stock price increase of 42% from April 21 to July 17, reaching an all-time high, but its current valuation is considered high [1][8]. Financial Performance - In the fiscal third quarter, Microsoft reported a 13% year-over-year revenue increase, accelerating from 12% growth in the previous quarter, with a 15% increase when adjusted for foreign exchange [5]. - Operating income grew by 16%, or 19% in constant currency, indicating strong financial health [5]. - The intelligent cloud segment saw a 21% year-over-year revenue increase, with Azure contributing significantly to this growth [6]. Business Momentum - Microsoft is benefiting from strong demand for its AI-related services and cost efficiencies that enhance employee productivity [2]. - The productivity and business processes segment also performed well, with a 10% year-over-year revenue increase driven by Microsoft 365 subscriptions [7]. Valuation Concerns - The stock is currently trading at a price-to-earnings ratio of nearly 40, raising questions about whether this high valuation is justified given the company's growth potential [8]. - Despite the strong business fundamentals, the high valuation may already reflect optimistic future expectations [8]. Shareholder Returns - Microsoft has a history of increasing its dividend for 23 consecutive years, with a current yield of 0.7% and a payout ratio of less than 25% of earnings, indicating potential for future dividend growth [10]. - The company has also been actively repurchasing shares, spending $9.7 billion on capital returns to shareholders in fiscal Q3, a 15% increase year-over-year [11].