Microsoft (NASDAQ:MSFT) The stock just did something that should be a red flag for investors. The company recently reported first-quarter fiscal 2025 results (ending Sept. 30), and the stock fell despite beating expectations.

This is never a good sign, and whenever you see it, it should prompt you to investigate further. While it's never a good thing when the stock falls after beating expectations, there's another warning sign Microsoft is showing, and that could spell more trouble.

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In the first quarter, Microsoft reported earnings of $3.30 per share, while analysts had expected just $3.10. This came against a backdrop of 16% revenue growth, which is impressive considering Microsoft's size.

However, one problem Wall Street had with Microsoft's quarter was its weak guidance. For the second quarter, the company only expects sales growth of 11%. While that's still double digits, it doesn't align well with Microsoft's valuation.

Microsoft is one of the most expensive big tech stocks, but it isn't growing as quickly as some of its competitors. Microsoft now trades at 31.5 times forward earnings, which represents a steep premium for any stock.

When you compare this valuation to that of some of Microsoft's peers, the investment thesis for the stock begins to weaken.

Let's look at some other big tech companies and their valuations. Some of the obvious comparisons are to Microsoft's “Magnificent Seven” companions, and almost all (except Nvidia) reported earnings for the most recent quarter.

Data source: YCharts. Note: Q3 refers to the quarter from July to September; Each company may have a different fiscal quarter.

Microsoft and Apple command fairly high premiums, although they don't achieve very good results. This could become a problem for both companies as they will need to achieve market-breaking results if they want to trade at a significant premium to the market (the S&P 500 trades for 23.8 times forward earnings).

Microsoft's next quarter isn't expected to be anything special. Wall Street analysts also do not expect full-year results to change. For fiscal year 2025, Wall Street analysts expect revenue growth of 14% and earnings per share (EPS) growth of 10%. With Microsoft expected to report fairly poor results for the 2025 fiscal year, don't be surprised if the valuation falls over the course of the year, putting negative pressure on the stock.

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