Traditional tech giant Microsoft Corporation (NASDAQ:MSFT) has seen its stock take off like a rocket ship over the past five years. Since late 2012 when it was trading around $25, Microsoft stock has more than tripled in quasi-linear fashion to north of $85.

The majority of that run has happened since early 2014, when forward-thinking Satya Nadella took over the reigns as CEO. He focused on transforming Microsoft’s old-fashion business model into a cloud-first business.

That transition has played out beautifully. Microsoft now has one of the largest and fastest growing public cloud businesses in the world, and Office 365 has turned into the go-to cloud work solutions platform.

Shareholders have celebrated. Not only has the stock more than tripled over the past five-plus years, but the run-up over the past year has been largely without hiccups. Over the past 12 months, Microsoft stock has dropped notably below its 50-day exponential moving average only once.

Will this monster run in MSFT stock ever end?

I think so. And I think the closer Microsoft stock gets to $90, the more susceptible it looks to a sizable correction, the likes of which it hasn’t experienced in a while.

When Will MSFT Stock Stop Rallying?

There is no doubt about the fact that Microsoft stock is a long-term winner.

The company is a leading player in some of the biggest growth markets of our time, including cloud and artificial intelligence. Azure is growing at an impressively robust rate, especially considering the underlying size of the business.

It is the second biggest public cloud business in the world, but it also is the fastest growing among notable players. Growth with size is a promising combination for long-term success.

Meanwhile, Office 365 has been a huge success. MSFT has successfully turned its old school, disks-and-download Microsoft Office model into a cloud solution. Demand has been huge. Office 365 commercial revenues jumped 42% higher last quarter. This demand surge will continue as more and more workloads migrate to the cloud.

But Microsoft stock has gone on for a long time without a sizable correction. And stocks don’t head upwards in linear fashion. Every once in a while, they pullback.

As MSFT stock closes in on $90, I think that the likelihood of a pullback in MSFT stock is quite high.

Why? Valuation.

Microsoft Stock and the $90 Level

At $90, Microsoft stock looks overvalued at this point in time.

Microsoft is not a hyper-growth company. Revenue growth over the past several quarters has hovered around 4% to 11%. Granted, overall revenue growth is accelerating as hyper-growth cloud segments continue to become larger drivers in the composite revenue picture, but 11% growth still isn’t that big.

Moreover, those hyper-growth cloud segments are starting to slow down.

Over the past several quarters, Azure revenue growth has gone from 120% to 90%. That is a natural slowdown from such big growth rates, but it is nonetheless a slowdown that will continue as the base gets larger (just look at Amazon Web Services, which is growing at 42%). Meanwhile, Office 365 commercial revenue growth has gone from 54% to 42% over the past four quarters.

With its hyper-growth segments starting to slow down, Microsoft is likely to experience revenue growth of less than 10% per year over the next several years. I’m modeling for somewhere around 8% per year, slightly lower than Street estimates on Microsoft.

There will be healthy margin expansion over the next several years which should drive out-sized earnings growth, but the amount of expansion won’t add a tremendous amount to profit growth. Over the past several quarters, profit growth has been roughly 5 percentage points higher than revenue growth.

Assuming that trends persist (and it should because long-term margin drivers remain intact), then Microsoft is looking at 13% earnings growth over the next several years.

The S&P 500 is trading at a 90% premium to its multi-year earnings growth prospects (20.4x this year’s earnings for 10.7% projected growth). MSFT stock easily deserves a 100% premium given its large moat and strong balance sheet. That implies a fair price-to-earnings multiple of 26.

A 26x multiple on this year’s earnings estimate of $3.40 implies a “fair” value of between $88 and $89.

Bottom Line on MSFT Stock

Microsoft stock is a long-term winner, but it hasn’t been subject to much volatility recently.

I think the stock is due for a valuation reset, and believe that such a valuation reset will happen if/when MSFT stock crosses into the $90’s.

As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.