We analyze the tech giant in order to calculate a fair value and we assign a Buy, Sell, or Hold rating. We discuss several strengths and weaknesses in Microsoft's operations by looking at individual components of the company.

We consider MSFT's potential competitors in operating system, office products, enterprise and cloud and hardware. Not more than 12 months ago, Microsoft NASDAQ: That valuation seemed low at the time and presented investors a good opportunity to get a piece of a great company at a fair, if not slightly undervalued, price. However, we believe the panorama has changed significantly. As such, this article will attempt to outline the latest developments in order to form an updated view.

The first thing to notice is valuation. If Microsoft was destined for high growth, rising earnings could offset this expansion.

However, MSFT will face some headwinds in the medium term yearswhich may slow down growth rates. Contrasting this with Apple NASDAQ: AAPL brings to light some differences.

Microsoft's office software is arguably the gold standard of document processing. From an economic perspective, the business model is great: Many believe Google NASDAQ: GOOGL could disrupt this space with their own document processing suite, Google Docs. We would argue that while it's possible that Google gets a slice of the market, due to high switching costs consumers and enterprises are more likely to stay with Microsoft Office in the medium term.

Switching costs in this case would mean retraining for businesses and potential formatting issues with historical files and databases.

This could lead to inefficiency and significant downtime. We don't believe Google Docs to be robust enough to be a substitute for Office.

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Having said that, it's possible they could gain market share from informal document-processing individuals and, subsequently, put some pressure on MSFT's Office margins. Microsoft's Windows Server division has been one of the fastest-growing divisions. There is currently a big space with regard to enterprise solutions. IBMhistorically a big player in this field, has lately shown some cracks by significantly missing their earnings. Perhaps, it is a sign that innovation has slowed down, or that clients are no longer valuing their solutions to the same degree.

IBM's struggles could be an indication that either the entire enterprise market is not what it used to be or, more likely, that the offering has become inferior in quality.

This is where MSFT could compete and potentially take a large slice of the market.

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However, an interesting point to consider is that AAPL recently partnered with IBM. Described by Tim Cook as "the perfect marriage," the partnership may be preparing to disrupt the enterprise market. In all, MSFT has a great opportunity to capitalize on the growing enterprise market by competing with IBM and Apple. Hardware has been a focus of Microsoft for the past microsoft stock buy sell or hold years despite it not being their core business.

Nadella recently mentioned that they expect Nokia to break even two years from now. That doesn't sound great given how quickly the smartphone market is moving, and the restructuring costs associated with cutting excess employees will be significant. We believe the two-year breakeven scenario to be optimistic and, as such, Nokia may continue to be a burden on Microsoft financially and may distract management from their core business.

By the time Nokia has stabilized, they exchange rates gbp to dirhams need to adapt once more to current market trends. Forex alerts uk could be chasing the market for some time to come.

To further support this idea, Microsoft has announced they will release a smart watch -- hopefully forex market timings ist time for the holiday season. After seeing Samsung get crushed by Apple, we don't producers livestock market report san angelo tx Microsoft stands a good chance here.

This move seems a bit desperate, although it may be a necessary defensive move.

Microsoft used to be able to charge significant money for their operating system, and historically the company has done well from the sale of licenses. However, Apple recently turned the tables on them by making operating software free. If Microsoft is to stand a chance at maintaining market share, they will need to reduce their pricing or even match Apple's strategy.

Apple can make up for this by increasing hardware sales, but how will MSFT compensate? The next point is in relation to Microsoft's attempt at creating "the tablet that can replace your laptop. Now, add to this the fact that the market for tablets is shrinking as seen by Apple's numbers and this make money with ehow the Surface Pro 3 in no-man's land.

It seems that the market has spoken, and that the tablet is becoming more obsolete perhaps not to the older demographic and being replaced with laptops and computers.

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In short, we don't see neither the need nor the attractiveness of the Surface Pro 3; thus, we think sales will be lackluster. This resulted in a Since expectations are low, MSFT may be able to positively surprise. To make matters worse, Zacks has recently downgraded MSFT's ranking from 3 "Hold" to 4 "Sell. Please note that for the sake of user experience, we will not provide the full workings of the DCF for MSFT here, but rather provide the main inputs and outputs.

For more in-depth and technical understanding of how DFC works and how we put it together, please see our previous DCF calculations for Berkshire Hathaway NYSE: B here and Deere NYSE: The table below shows the main assumptions we make to produce the DCF valuation. Inputs are as follows:. In the above scenario, we have assumed flat revenue for year one, and 6.

This rate is the five-year compounded average growth rate.

Microsoft has some challenges to face in the medium term, but also a lot of opportunity as outlined above. If headwinds are stronger than anticipated, the company might see some downside in the same time frame, as falling earnings could test shareholders. We recommend remaining cautious and monitoring the adaptation journey that Microsoft has embarked upon.

We conclude by giving MSFT a Hold rating.

The author is long AAPL, DE, BRK. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it other than from Seeking Alpha.

The author has no business relationship with any company whose stock is mentioned in this article. Long Ideas Short Ideas Cramer's Picks IPOs Quick Picks Sectors Editor's Picks. Buy, Sell, Or Hold? Value, long-term horizon, growth at reasonable price, medium-term horizon. Summary We analyze the tech giant in order to calculate a fair value and we assign a Buy, Sell, or Hold rating. We take a look at expectations going into earnings. Change in the Panorama The first thing to notice is valuation.

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