Why Microsoft Is Likely to Be Worth Over $1 Trillion

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Microsoft Corp. (NASDAQ: MSFT) has just seen one of the most bullish analysts on Wall Street get even deeper conviction about the company’s upside ahead. was Wedbush Securities already had Microsoft rated as Outperform with a $140 price target, but the firm added the stock to its Best Ideas List and sees substantial upside ahead.

As far as what a $140 target looks like compared with peers, particularly since it implies north of a $1 trillion market capitalization rate, the consensus analyst target price was $125.45 on last look, and the range of most bearish to most positive was $75 to $160.

Wedbush’s Daniel Ives believes that Microsoft’s Azure platform, Office 365 and enhanced artificial intelligence capabilities, along with a major partner and sales force push, are a unique value proposition that puts Microsoft in a differentiated position to drive cloud sales for 2019 and beyond and help shape the future growth trajectory. These expectations mean that Microsoft would go over the $1 trillion dollar market cap during 2019.

The call from Ives said:

Microsoft remains in an enviable position heading into the next 12 to 18 months on the heels of its cloud success and is firing on all cylinders around its Office 365 and Azure strategic vision based on our recent checks in the field. We believe the shift to cloud is a major secular trend that is significantly benefiting MSFT in the field as a key tailwind and should continue its momentum heading into the next 12 to 18 months in our opinion. With roughly 30% of workloads in the cloud today and poised to hit 55% by 2022, we believe Nadella & Co. are in the catbirds seat to get more of these complex workloads (e.g. AI, machine learning, etc.) as more enterprises take the leap to a hybrid cloud architecture over the coming years.

There is also some talk about competition in the cloud. The report said:

While AWS remains the leader in cloud (and the VMware partnership remains key), we believe Microsoft is starting to close the gap as Redmond is seeing an acceleration of spending among enterprises into the rest of 2019/2020 around public and hybrid cloud deployments especially with momentum through the all-important partner channel. The cloud story at Microsoft is showing no signs of abating based on our recent checks as Azure (76% year-over-year growth in its last quarter) and the secular shift among enterprises to Microsoft’s cloud platform is accelerating with higher margin cloud sales opening up the next phase of growth (e.g., Office 365 migrations) for Microsoft in the field.

Perhaps even better than had been seen in some tech reactions after earnings was that last month’s knee-jerk negative reaction around a lack of upside in the quarter and guidance should be short-lived. The view is that Microsoft investors are now starting to fully realize that Redmond is only in the early innings of a transformational cloud story poised to play out over the coming years. Ives further said:

We also believe the tide has turned significantly for Microsoft on the “game changing” $10 billion dollar JEDI Beltway cloud deal for the Pentagon with our work in the field indicating this deal/bake-off is now a toss-up between Bezos and Nadella versus the slam dunk win for AWS that it appeared to be roughly a year ago and thus could represent a key positive catalyst for MSFT looking ahead.

Microsoft shares closed up 1.4% at $110.97 on Friday, and its 52-week trading range is $87.08 to $116.18. The stock was up another 0.8% at $111.90 on Monday morning, with a market cap nearing $860 billion.

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