Microsoft’s Stock Just Got Cheaper — But Is It a Buy Amid Rising Tariff Risks?

Mickey082024
04-08

$Microsoft(MSFT)$

Following the latest market pullback, Microsoft is now trading at one of the cheapest valuations we’ve seen in over a year. Based on its forward price-to-earnings (P/E) ratio—currently around 24.85—investors have rarely had the opportunity to buy this tech titan at such a discounted multiple. Historically, Microsoft has commanded a premium for good reason: it's one of the most profitable and strategically positioned companies in the world.

But the selloff wasn't random. It came after a wave of tariff announcements that are likely to reverberate through global supply chains—and Microsoft is right in the middle of that storm. So before deciding whether this is a buy-the-dip opportunity or a value trap, we need to examine how the tariffs are impacting Microsoft, both now and potentially through the rest of 2025.

Margin Pressure from Rising Costs

The first and arguably most significant way the tariffs will impact Microsoft is through its capital expenditure plans.

Microsoft has publicly stated that it intends to spend nearly $80 billion in 2025 to build out data centers and infrastructure to support its artificial intelligence (AI) ambitions. These aren’t just minor upgrades. This is foundational investment to support the future of Azure, Copilot, OpenAI integration, and a broader AI-powered ecosystem.

But here’s the problem: many of the critical components used in these data centers—think high-end GPUs, networking switches, storage drives, and power systems—are either sourced globally or rely on materials that flow through global supply chains. With tariffs now in place, those costs are expected to rise significantly.

What does that mean for Microsoft?

  • The company will likely pay more for the same hardware, effectively reducing the return on every dollar invested in AI infrastructure.

  • It may be forced to slow down its AI buildout, delay data center openings, or prioritize only the most ROI-rich deployments.

  • There’s also the risk of supply chain disruptions, which could create bottlenecks and unpredictability in project execution timelines.

In short, Microsoft could be facing a scenario where it spends more capital for less productive capacity—an issue that goes straight to the heart of long-term profitability and competitiveness.

That said, it's important to remember that Microsoft isn’t alone in facing this. Competitors like Amazon Web Services (AWS), Google Cloud, and Meta will also be dealing with similar cost increases and may pull back on their AI infrastructure spending. In fact, Meta has already shown signs of slowing its AI investments, as discussed in a recent breakdown I published. So while this is a clear negative, Microsoft’s relative position in the AI race might not suffer much—especially if it maintains its pace while others fall back.

Demand Risk from Enterprise Clients

The second major area of concern is end-market demand, particularly among Microsoft’s enterprise customers. Tariffs don’t just impact supply chains—they ripple through the economy by raising input costs, weakening consumer demand, and compressing corporate margins.

Microsoft’s customer base is diverse. It sells:

  • Enterprise software like Office 365, Windows, Dynamics, and Azure services

  • Consumer products like Surface laptops and tablets

  • Entertainment products such as the Xbox console and Game Pass subscriptions

But in the context of these tariffs, enterprise spending is the bigger risk. If the companies Microsoft sells to are seeing demand drop and costs rise due to inflationary pressures from tariffs, they’re going to tighten budgets. That means:

  • Cloud migration projects might be delayed.

  • Software subscription renewals could be deferred or downsized.

  • Spending on things like IT upgrades may get pushed into 2026 or beyond.

While the consumer side of Microsoft's business will also feel pressure—especially hardware sales—this area is relatively smaller in margin contribution compared to software and cloud services. Enterprise demand is where we’ll likely see the biggest impact in the near term.

So, what we’re looking at is a potential two-sided squeeze: higher costs from infrastructure buildouts, and weaker demand from corporate clients. Not a great combo.

Offsetting Tailwinds and Mitigating Factors

Now, not all the news is bad. There are a few factors helping to cushion the blow:

  • Interest rates have come down, lowering Microsoft's cost of capital. That makes it cheaper to fund long-term projects, refinance debt, or deploy capital through share buybacks or strategic acquisitions.

  • The U.S. government has already begun carving out exemptions. For instance, semiconductors have reportedly been excluded from the latest round of tariffs. That’s significant—semiconductors are one of the largest line items in Microsoft’s data center spending. If chips remain tariff-free, the cost pressures could be less severe than originally feared.

Still, the broader macroeconomic impact of the tariffs can’t be ignored. Even with selective exemptions, we’re likely entering a period of higher volatility, lower visibility, and potentially slower growth across the tech sector.

Valuation: What the Market Is Pricing In

Despite the negative headlines, this is where things start to look interesting again.

  • Microsoft’s forward P/E ratio has compressed to 24.85, a level not seen in over a year.

  • Based on my updated Discounted Cash Flow (DCF) model, which includes conservative adjustments for slower revenue growth and higher capex, Microsoft’s intrinsic value comes out to around $467 per share.

  • The stock is currently trading at around $360 per share, implying a discount of roughly 20% to fair value.

That’s a substantial margin of safety for a business with Microsoft’s track record, cash flow generation, and competitive positioning. Historically, buying Microsoft at sub-25 forward multiples has delivered strong long-term returns—especially when combined with temporary macro-driven fear like we’re seeing now.

Final Thoughts: Is Microsoft a Buy Amid the Chaos?

So, what’s the bottom line? Yes, I think Microsoft is a buy here, particularly for long-term investors who can look past short-term volatility. The company’s fundamentals remain strong, its leadership in enterprise software and AI is still intact, and many of the current headwinds—while real—are already reflected in the stock price.

This isn’t a time to go “all in,” but it is a great time to build a watchlist, start scaling in, or add to an existing position if the stock drops further—say, another 5–10%. At that point, you're getting one of the best companies in the world at a valuation that bakes in a lot of macro risk.

You don’t often get chances like this with a company like Microsoft. When you do, it’s worth paying attention.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub

💰 Stocks to watch today?(30 Apr)
1. What news/movements are worth noting in the market today? Any stocks to watch? 2. What trading opportunities are there? Do you have any plans? 🎁 Make a post here, everyone stands a chance to win Tiger coins!
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

  • Merle Ted
    04-08
    Merle Ted
    Unless 🤡 say something more stupid about tariffs, looks like worst is over we might close $ 380 by Friday?
  • Venus Reade
    04-08
    Venus Reade
    The bounce is finally here! Tariff negotiations are happening!!!
Leave a comment
2