Some tech giants have found 2021’s stock market a less hospitable environment than recent years. The post-covid landscape has seen some of the world’s biggest companies – Apple and Amazon immediately come to mind – fall behind the S&P 500’s performance.
Microsoft (MSFT), however, has kept up the pace, year-to-date just edging ahead of the benchmark index’ gains.
According to Wedbush’s Daniel Ives, the signs are there for Microsoft to continue pushing ahead, and Ives thinks the growth potential of its cloud business is being underestimated.
“We believe the Street’s view of moderating cloud growth on the other side of this 15 month WFH cycle is contrary to the deal activity MSFT is seeing in the field,” the 5-star analyst said. “While we have seen the momentum of this backdrop in the last few years, we believe deal flow looks incrementally strong (Office 365/Azure combo deals in particular) heading into FY22 as we estimate that Microsoft is still only ~35% through penetrating its unparalleled installed base on the cloud transition.”
Ives’ comments follow June quarter checks which indicate many companies are readying themselves for increasing adoption of “cloud driven architecture.”
Transition to the cloud is now a top IT priority for businesses, and Ives thinks CIOs (chief information officers) have already given the green light for 85%-90% of “these cloud deployments.” And via its cloud service Azure, the analyst believes Microsoft is better positioned than Amazon’s AWS to gain share in what he calls the “cloud arms race.”
By the end of 2021, Ives forecasts enterprise workloads on the cloud will grow from 35% at present to 44% and increase to 55% by next year.
While the company’s heavyweight tech peers are set to make bank from the estimated $1 trillion TAM (total addressable market) this digital transformation represents, it is Microsoft that is best placed to reap the rewards.
“We believe this disproportionally benefits the cloud stalwart out of Redmond, as Nadella & Co. are so well positioned in its core enterprise backyard to further deploy its Azure/Office 365 as the cloud backbone and artery,” Ives summed up.
To this end, there’s no change to Ives’ rating which stays an Outperform (i.e., Buy) or price target which remains at $310. The implication for investors? Upside of 24%. (To watch Ives’ track record, click here)
Looking at the consensus breakdown, Ives’ colleagues are in complete agreement. All 24 recent reviews say Buy, naturally culminating in a Strong Buy consensus rating. The average price target clocks in at $297.87, suggesting one-year returns of 19%. (See Microsoft stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
