Is Microsoft a buy despite valuation, regulation risks?
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Microsoft (NASDAQ:MSFT) has rebounded from a multi-month low in the past week thanks to a Street-beating earnings report that showed it could still notch 20% revenue growth despite being one of only two companies in the world to sport a market cap above $2T. But is MSFT a buy given a looming fight with antitrust regulators over its Activision (NASDAQ:ATVI) purchase and lingering concerns about its valuation?
Taking on the Regulators
Microsoft (MSFT) has made a big bet on video games and the metaverse sector. Earlier this month, the company announced a $69B deal to purchase video game maker Activision (ATVI), an acquisition that could set the company up for further growth well into the future.
However, the deal has also opened a massive regulatory risk. Given the antitrust climate in Washington, MSFT could have trouble completing the merger -- a deal that reportedly comes with a breakup fee of $3B.
Bloomberg reports that the Federal Trade Commission will take the lead on the review of the MSFT/ATVI combination, rather than the Justice Department. This is seen as an ominous turn of events as the FTC is led by Lina Khan, an outspoken critic of Big Tech and someone who has described herself as having a "fierce sense of urgency" in her role as a regulator.
Still, while antitrust concerns loom on the horizon, the current iteration of MSFT continues to beat expectations. Last week, MSFT released a blockbuster quarterly report -- one that caused Citi to say the software maker was "living up to the legend" of its past glories. 
The company topped expectations in its latest quarter on revenue that rose 20% from last year to reach $51.7B. At the same time, the company issued robust guidance, driven by projected results from its cloud products.
The stock surged 3% on the day following the earnings report and went on to notch a total of four consecutive days of gains. This rally took the stock off its lowest level in more than three months, as shares had retreated dramatically with the rest of the tech sector in the opening stages of 2022.
MSFT reached a 52-week high of $349.67 late last year but suffered massive selling pressure in January, as the prospects of higher interest rates led investors to rethink the valuation of tech stocks. All told, shares retreated more than 17% from their highs to the multi-month low they saw just ahead of the earnings report.
Even with the recent rebound, the stock remains more than 9% off the levels it saw in late December, as you can see from this chart. 
Is Microsoft a Buy?
Even though it has moderated from its late-2021 peak, concerns about MSFT's valuation remain. Seeking Alpha's Quant Ratings, a system that assigns letter grades to various measures based on quantifiable information, gives the company an F for valuation. The ratings also look askance at the firm's growth prospects, giving it a D+ on that front.
However, the Quant Ratings see some potential rays of hope as well. The system grants MSFT an A+ for profitability and an A- for momentum.
The Wall Street community has a much more unambiguously positive view of the stock. Of the 47 analysts surveyed by Seeking Alpha, fully 32 have issued a Strong Buy rating on the stock -- 68% of the total. Throw in Buy ratings and 46 out of the 47 analysts have a bullish view of MSFT. (One analyst has a Hold.)

For a deep dive into MSFT's plans for one of its most crucial segments, especially given the ATVI merger deal, see why SA contributor Allen Greathouse thinks the company is building the "Netflix of gaming."