Most Of Microsoft's Cloud Business Is 'Essential,' Even In a Recession, Says Bullish Wedbush

Microsoft Corporation MSFT beat analyst estimates for third-quarter earnings on Wednesday, and a bullish Wedbush analyst said much of the company's business benefits from the pandemic environment. 

The Microsoft Analyst

Wedbush analyst Daniel Ives maintained an Outperform on Microsoft with a $210 price target. 

The Microsoft Thesis 

Cloud strength was the "key theme" in Microsoft's earnings report, Ives said in a Wednesday note. (See his track record here.) 

Only about one-third of Microsoft's revenue, from PCs and supply chain, is exposed to the coronavirus pandemic, the analyst said. The rest, especially from cloud computing platform Azure and Office 365, benefits from the COVID-19 environment as more enterprises look for remote work options, he said. 

The vast majority of Microsoft's revenue and 80% to 90% of the company's valuation is based on Azure, Office 365 and core enterprise driven franchise, he said. 

"We have seen relatively strong cloud deal activity around Azure in the field and these numbers justify the bullishness the Street has shared over the past month on shares of MSFT." 

About 90% of the Microsoft cloud business can be deemed "essential" for enterprises, even if there's one or two quarters of a deep recessionary environment, Ives said. 

Wedbush values the company's cloud franchise at between $900 billion and $1 trillion, and said it remains bullish on the stock over the next 12-18 months.

MSFT Price Action

Microsoft shares were up 0.76% at $178.78 at the time of publication Thursday.