Microsoft Stock: A Strong Buy Due to Azure Cloud

Posted On October 26, 2017 1:50 pm

Microsoft Corporation (NASDAQ:MSFT) is making great strides this year amid several growth catalysts. Microsoft stock is up over 26% year-to-date. The company will announce quarterly results on Oct. 26. Almost every renowned Wall Street analyst believes that the company will beat expectations. BofA/Merrill Lynch recently said in a report that Microsoft will beat fiscal first quarter expectations.

However, the bank said that the company’s forecast will be lower-than-expected. On Oct. 24, investment firm Stifel increased its price target for Microsoft to $85 from $80.  The firm has a “Buy” rating for the stock. Piper Jaffray is also positive about MSFT ahead of earnings. The firm has a price target of $90 for Microsoft stock, with an “Overweight” rating.

The company’s Azure Cloud platform is the strongest and most important catalyst for Microsoft stock. In the last quarter, Azure revenue surged 94% year over year. According to a report by Synergy Research, Microsoft is the second biggest Cloud player in the world. However, Synergy notes that Microsoft is the market leader in SaaS Cloud market. In the second quarter, SaaS market increased by 31% to reach $15 billion value.  Microsoft is expecting its Intelligent Cloud revenues to come in between $6.9 billion – $7.1 billion in the fiscal first quarter, while the Street is expecting the revenue to come in at $6.78 billion.

Regardless of the results, we believe the stock is poised for more growth amid an explosive Cloud growth and thriving core business.

Microsoft surprised investors and Cloud experts at the Ignite conference in September with new hybrid Cloud features and plans. Microsoft has made it extremely easy for companies to migrate to the Cloud. Microsoft’s Azure SQL Database service can be operated by people who aren’t familiar with programming, unlike AWS migration, which requires a lot of money and skill for complete migration.

Analysts also think that Amazon is facing problems in the Cloud segment amid a pricing war, in which Microsoft and Alphabet have a lead. Amazon recently announced that it will start charging its AWS customers by the minute rather than by the hour. This pricing model will take a toll on Amazon’s revenue.

Microsoft’s FCF is increasing at a healthy rate. The stock has a dividend yield of 2.2%, which is excellent when compared to the technology sector.

Related: These 4 Stocks Are Warren Buffett’s Favorites! 

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