Should You Buy Microsoft Stock Now or Wait for a Dip?

Shares of Microsoft (NASDAQ: MSFT) are up 18% this year (returns as of June 27), and that has pushed the stock to a new all-time high. It's been a traditionally safe stock to own, but it's definitely expensive these days, trading at around 38 times its trailing earnings.

The business has many growth opportunities and has been a big player in artificial intelligence (AI), which has investors bullish on its long-term future. But given its high valuation, should you consider waiting for a dip in price before adding the stock to your portfolio?

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Image source: Getty Images.

Microsoft's stock is trading at a higher earnings multiple than its 10-year average

Entering trading this week, Microsoft's valuation was at record levels, with a market cap of $3.7 trillion. It's one of the most highly valued stocks on the market today, trailing only Nvidia. But market cap alone doesn't tell investors if a stock is overpriced or not.

Looking at a stock's price-to-earnings (P/E) multiple can be an effective way to gauge its relative value. You can compare it to other stocks or even look at its historical average. And based on its 10-year average P/E, Microsoft does indeed look like an expensive stock right now.

MSFT PE Ratio data by YCharts

The stock doesn't look wildly expensive based on the above figure, but investors do appear to be paying a higher premium for the business these days. A higher P/E multiple can be justifiable if a business is performing particularly well and growing at a higher rate than normal, or if it has a big growth catalyst -- such as AI.

Microsoft's growth rate has been higher than normal

In recent years, Microsoft has expanded through its acquisition of video gaming company Activision-Blizzard and its heavy investments in AI. Currently, its AI business is generating revenue at an annual run rate of $13 billion, which is a modest amount for a tech company whose sales over the trailing 12 months have totaled $270 billion.

MSFT Operating Revenue (Quarterly YoY Growth) data by YCharts

There's still potentially much more growth ahead if demand for AI-powered PCs picks up. Unfortunately, with consumers scaling back on spending amid turbulent economic conditions, it may take some time before that may have any sizable impact on its operations.

Should you buy Microsoft stock today?

Microsoft is a good long-term investment, but I wouldn't buy it today. At such a high valuation, I don't think it's generating nearly enough growth to justify such a high premium, especially when there are many cheaper AI stocks to choose from; there's not nearly a compelling enough reason to invest in Microsoft right now.

I'd put the stock on a watch list, but I wouldn't buy it at its current valuation. There's not much margin of safety and if there's a slowdown in tech spending, especially if companies worry about an economic downturn, then there could be considerable room for the stock to fall.

Should you invest $1,000 in Microsoft right now?

Before you buy stock in Microsoft, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Microsoft wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $722,181!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $968,402!*

Now, it’s worth noting Stock Advisor’s total average return is 1,069% — a market-crushing outperformance compared to 177% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 30, 2025

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.