Why Microsoft Could Be Next To Join The $1-Trillion Market Cap Club

The small but growing club of American companies valued at $1 trillion or more could soon welcome Microsoft Corporation MSFT, according to Wedbush.

The Analyst

Analyst Daniel Ives initiated coverage of Microsoft with an Outperform rating and $140 price target.

The Thesis

Microsoft continues to benefit from a favorable industrywide cloud tailwind, Ives said in the initiation note. (See his track record here.)

Wedbush's firsthand checks and surveys found that enterprises are accelerating their public and hybrid cloud purchases, which implies a "healthy environment" for pure-play cloud companies like Microsoft for at least the next 12 to 18 months, the analyst said.

A $20-billion run rate for Microsoft's Commercial Cloud business was "a pipe dream" several years ago, but is now reality, Ives said. Microsoft's cloud is showing no signs of slowing down, with Azure posting an 89-percent year-over-year growth rate and while still in the early days of playing out Microsoft's massive installed base, he said. 

The cloud environment is competitive, with Amazon.com, Inc. AMZN acting as a "major force," the analyst said. Yet Microsoft boasts an "army of partners and dedicated sales force" and stands to convert enterprises to its platform, Ives said, citing firsthand checks with Microsoft partners and customers.

Microsoft's growing cash hoard should pave the way for a 2.5-3-percent dividend yield within two years, with a near-term 25-35-percent increase likely, according to Wedbush. The sells-side firm expects Redmond to be aggressive in M&A activity around cloud and management and unafraid of larger acquisitions.

Price Action

Microsoft shares were trading near-flat at $108.55 at the time of publication Friday. 

Note: Microsoft on Oct. 24 reported first-quarter results that included an EPS beat.

Related Links:

It's Hard To Find Problems With Microsoft's Q4 Earnings: The Street Weighs In

Stifel Raises Microsoft Price Target After 'Big Wow' Of A Quarter