Why Microsoft, the Leader of the AI Era, Can't Be Valued by the Textbook
- 오리 오리
- Jul 8
- 3 min read
At the center of the AI and cloud revolution stands Microsoft (MSFT). As the stock hits new highs, many investors are asking the same question: "Is its current valuation fundamentally justified?"
To answer this, we will go beyond simple metrics today. By combining a classic financial model from the textbooks—the Gordon Growth Model (GGM)—with perspectives from global financial media, we will conduct a multi-faceted analysis to understand Microsoft's current position in the market.
Why Did We Choose the Gordon Growth Model?
Among the many valuation models available, we chose the Gordon Growth Model for a few specific reasons.
A Litmus Test for Growth Stage: This model is designed to value "stable-growth" companies that have reached maturity. Therefore, if the model "breaks" when applied to Microsoft, it paradoxically becomes powerful evidence that MSFT is in a phase of "super-normal growth" beyond stability. In this sense, the model acts as a litmus test for diagnosing a company's growth stage, not just for calculating a price.
A Focus on Intrinsic Value: Unlike methods like the Price-to-Earnings (P/E) ratio, which compares a company to its peers, the GGM focuses on the intrinsic value derived from dividends—the actual cash flow returned to shareholders. This is a fundamental approach that looks at the company's own value, setting aside market sentiment or speculative bubbles.
1. A Financial Model's View of MSFT: An Unexpected Discovery 💡
So, what happened when we analyzed Microsoft using this model? Here are the key metrics we calculated using a spreadsheet:
Average Annual Dividend Growth Rate (g) ≈ 9.64%
Investor's Required Rate of Return (r) ≈ 9.09%
Why the Formula 'Breaks': The Meaning of the Denominator (r-g)
The core of the GGM formula (P0=r−g/D1) is its denominator, (r-g). This represents the "net yield" that an investor receives after accounting for the company's growth. However, our calculation resulted in a situation where the growth rate g is higher than the required return r, making the denominator (r-g) a negative number. This means the model is essentially saying, "This company's growth rate so far exceeds investor expectations that I cannot calculate its value based on my assumption of perpetual, stable growth."
'Stable Growth' vs. 'Super-normal Growth'
The GGM is suited for a company in "stable growth," like an airplane cruising at a steady altitude. Our analysis, however, shows that Microsoft is not that cruising plane. It is a jet fighter taking off from the runway, powered by the engines of AI and cloud—a company in "super-normal growth." This is an explosive, temporary phase of expansion that cannot last forever, and because it violates the model's fundamental assumptions, the model returns an "incalculable" result.
What This Implies for Investors 🧐
This discovery has a critical implication. The current market price of Microsoft is not a reflection of its present, stable earnings. It is a price that has pulled forward all potential future value, betting on a multi-year period of explosive "super-normal growth" followed by an eventual soft landing into a more stable phase. This means investors must ask: "Will this super-normal growth last as long as the market expects?"
## 2. The Global Perspective: What the Media is Saying 🌐
So where does this market expectation for "super-normal growth" come from? Analysis from global media outlets points to a clear answer.
Bloomberg identifies the "ability to monetize AI" as the key driver. It notes that Microsoft is ahead of other Big Tech firms in generating real revenue from AI by integrating "Copilot" into its products. However, it also cautions that the high valuation, driven by these expectations, is a potential risk.(https://www.bloomberg.com/news/articles/2024-01-24/microsoft-s-30-a-month-ai-copilot-is-off-to-a-strong-start)
Reuters argues that the growth of the cloud division, Azure, is the most critical factor. The demand for AI services is directly translating into demand for cloud infrastructure, and Azure's strong performance in this area is a key indicator of future success.
The Wall Street Journal highlights Microsoft's stability compared to its peers. Thanks to its reliable B2B subscription revenue from Windows and Office 365, it is seen as a more defensive investment during times of economic uncertainty.
(https://www.wsj.com/business/deals/microsoft-is-an-ai-growth-story-and-a-safe-haven-b9a35e80)
3. Final Conclusion: How Should We View MSFT?
When we synthesize our financial model analysis with the perspectives from the global press, we arrive at a single, coherent conclusion.
The current stock price of Microsoft is a powerful bet on its future as the dominant force in the AI era. Our valuation model "failed" precisely because the market has immense expectations for the growth fueled by AI and cloud.
Ultimately, an investment in Microsoft is not about answering, "Is the stock cheap or expensive today?" Instead, it is about answering the question: "Do you believe Microsoft will actually deliver on the monumental growth that the market has already priced in?"
This article is for informational and academic purposes only and does not constitute investment advice. All investment decisions and responsibilities lie with the individual investor.
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