stock has climbed more than 15% in 2020 as the company has avoided much impact from Covid-19. Yet
argues that the shares have more room to run—and that the tech giant’s market capitalization could grow to more than $2 trillion on the strength of its Azure cloud-computing business.
Analyst Philip Winslow reiterated an Outperform rating on Microsoft Tuesday, while boosting his target for the stock price to $250 from $205, based on the strength of the company’s cloud offerings.
The pandemic “has created a Zeitgeist moment for the cloud as a whole,” as the last holdouts with a ‘no-cloud’ strategy have finally been forced to embrace the movement, he wrote in a research note, saying he expects “Microsoft Azure to disproportionately benefit as the ‘enterprise cloud.’”
(AMZN) Amazon Web Services is still the biggest cloud provider, Winslow believes that Microsoft is narrowing the gap, while pulling farther ahead of the No. 3 player,
(GOOGL) Google Cloud. While investors have already clearly recognized the potential for Microsoft and piled into the shares, “the full multi-year impact of Azure’s growth potential is still not properly reflected in consensus estimates or the stock’s valuation,” he said.
Not everyone is as optimistic about Azure as Winslow. The consensus view on Wall Street is that revenue growth will slow from 59% in the fourth quarter of this year to 42% in fiscal 2021, falling into the mid-30% range afterward.
Winslow said that this is too conservative. His research shows that “Azure has grown and continues to grow at faster rates than all of its closest hyperscale competitors,” including Amazon, Alphabet, and
Alibaba Group Holding
This leaves him confident that Microsoft’s cloud position will drive double-digit revenue growth over the next three to five years, supporting a “greater than $2 trillion market cap!” He said that if Microsoft were able to trade an enterprise value of 30 times the $68.2 billion in free cash flow he expects for fiscal 2023, its market capitalization would equal $2.2 trillion, equivalent to $283 a share.
Microsoft, which is already one of the world’s most valuable companies with a $1.4 trillion market capitalization, was down 0.6% to $181.67 in Tuesday trading.
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