DCF Modeling: Modeling A.I. Leader Microsoft to Understand How Much Upside is Left in the U.S. Tech Rally and A.I. Hype
DCF Modeling Discussion: A Timeless Investor Education Piece for Members
Note: In a previous note, I provided my analysis on Adobe and scenario analysis on this important A.I. leader. This note here serves as the June Mid Month report.
If you enjoy fundamental analysis, this piece will help you think about stock selection from continued usage of the DCF model discussed in plain english (no technical jargon). This note will make all of my members more advanced fundamental analysts/investors, and therefore give them an intense edge compared to many other market participants. Do everything you can to give yourself an edge.
Ask yourself this: Will 2H 2023 be as easy as 1H 2023? Consider what is the opportunity cost of not doing proper due diligence, which I provide at a globally accessible entry point.
Members,
I see myself having a dual mission - to help the folks safeguard their capital as much as possible during dangerous bearish market environments. And also to capture (with great thought & care) strategic upside when conditions become more favorable.
A difficult mission indeed, but we will of course put our best foot forward to attempt this.
I’m well aware of the intense potential that A.I. brings forth to the table, and that is why this previous weekend, I provided a key piece on Adobe and my own DCF Model’s outcomes on the name.
Why did I bring up Adobe? Well, two reasons:
To help folks understand the mechanics and valuation inputs the A.I sector is trading on (with Adobe as the prime example in the note)
To give folks a tradable idea that still had upside based on my modeling when ADBE was still at 455.
We had a lot of new members join this weekend to learn my methodology (smart move by them), and their proactiveness rewards them: Adobe skyrocketed from 455 last week to intraday touch 490 today.
What my personal DCF modeling can do is attempt to estimate what Wall Street is using for their inputs, and therefore understand whether they make sense in the context of the company’s developments and macro conditions.
The end result is to produce thoughtful scenario analysis for a given stock.
However, how long a stock sticks at a current level, or where it goes after the target is reached is not something anybody can say with any degree of certainty. Once we get close to the vicinity of the target price, I need to make this clear: I have much less visibility into what happens next.
With Adobe reporting earnings on June 16th, new Investors to the name may want to be patient.
Now, in this note, I want to continue on the DCF analysis discussion.
This note will be focused on using the DCF to assess Microsoft’s valuation setup.
Why Microsoft, and why now?
This is because Microsoft is the largest weighting component in Nasdaq-100 QQQ ETF. Microsoft has obviously benefited from the A.I. frenzy, and its importance in the market holds the keys to where the QQQ goes next.
By having done a personal DCF on Microsoft, I will use the largest Nasdaq-100 component to provide a logical and fundamental understanding of how high QQQ can trade before Fed policy missteps rapidly and violently change investor sentiment.
Want to understand how far a QQQ correction can go? Start by assessing Microsoft, which is what we’ll be doing in this note.
Please note: This note is not designed to teach all that one needs to know about creating a DCF. It is an application-oriented research note designed to share with you my thinking on the model and more importantly, discuss the market implications and key levels where the stock (and therefore QQQ) may experience a pivotal reaction.