Commonwealth Bank of Australia Ltd (ASX: CBA) shares have been under the microscope over the past couple of years following their extraordinary rise.
In fact, CBA shares are up more than 80% over the past two years.
Since the beginning of the year, analysts began to warn that CBA shares were overvalued. They suggested they would underperform the market.
For the majority of 2025, it has been nearly impossible to find a single analyst with a buy rating on CBA shares. However, Australia's biggest bank has defied expectations and risen 17% for the year to date.
That performance is significantly ahead of the S&P/ASX 200 Index (ASX: XJO), which is up just 4% over the same time frame.
As the year progresses, CBA shares appear to be continuously setting new all-time highs. Earlier this week, another new record was set, with CBA shares exceeding $183.
Analysts remain perplexed over the bank's performance, especially given the company's size and eye-watering valuation. CBA shares currently trade at a price-to-earnings (P/E) ratio of 31.63. By comparison, JP Morgan Chase (NYSE: JPM), which is widely considered to be America's highest-quality bank, is trading at a P/E ratio of just 13.17.
CBA shareholders may be left wondering whether to hold onto their investment or sell.
While it's notoriously difficult to predict short-term share price movements, the longer term often offers more certainty. It can also be useful to look at historical parallels.
Microsoft's lost decade
Should CBA shares remain elevated, it's possible that forward returns could resemble that of Microsoft (NASDAQ: MSFT) between 2000-2010. During that timeframe, returns were essentially flat. This period later became known as Microsoft's 'lost decade'.
In 2000, Microsoft's market capitalisation was $510 billion, making it the world's most valuable company. However, by June the following year, that had slipped to $249 billion. It took more than a decade for its market capitalisation to return to above $500 billion.
During this period, the company delivered 10% annual revenue growth, from US$23 billion in 2000 to US$62.5 billion in 2010.
However, Microsoft traded at such a high valuation (of more than 70 times earnings) at the start of the decade. It was grossly overvalued. It took more than a decade of earnings growth for the company's valuation to accurately reflect its intrinsic value.
Foolish Takeaway
In a 13 June research note, broker Macquarie reaffirmed its price target of $105 and underperform rating on CBA shares. Those holding onto CBA shares should familiarise themselves with Microsoft's lost decade and the potential consequences of holding onto an overvalued stock. It's quite possible that CBA shares could still be worth $183 in 10 years.
