Wedbush Expects Microsoft To Report Earnings Beat For 'Picasso-Like Masterpiece' Quarter, Raises Price Target

Wedbush analyst Daniel Ives expects Microsoft Inc MSFT to deliver another “Picasso-like masterpiece” quarter next week with numbers exceeding Street estimates.

The Microsoft Analyst: Ives maintained Wedbush’s “Outperform” rating and raised the 12-month price target to $375 from $350, calling the Satya Nadella-led company a “favorite large cap cloud play.”

The Microsoft Thesis: Deal sizes continue to increase as enterprise-wide digital transformation picks up pace and chief information officers deepen the focus on readying their enterprises for a cloud-driven architecture with the Redmond, Washington-based tech giant poised to beat Azure whisper growth numbers of nearly 45% this quarter, as per Ives.

This transformation represents a $1 trillion spending figure as the shift to cloud picks up pace in the coming years.

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Wedbush predicts that the enterprise workload on the cloud would rise from 40% today to 45% by the end of 2021 and 55% by 2022.

Apart from Microsoft, companies that stand to benefit include Amazon.com, Inc AMZN, Alphabet Inc GOOGL GOOG subsidiary Google, as per Wedbush.

Ives wrote that Azure’s “cloud momentum” is still in the early days in relation to Microsoft’s “massive installed base.”

The analyst noted that the Office 365 transition for both consumer and enterprise is providing “growth tailwinds” over the next few years.

“We believe ~90% of these cloud deployments have already been green lighted by CIOs and healthy cloud budgets already in place, with Redmond firmly positioned to gain more market share vs. AWS [Amazon Web Services] in this cloud arms race.”

Ives said that the Office 365 price increase for 2022 was a “smart strategic poker move” that could add more than $5 billion in terms of an incremental tailwind for Microsoft in 2022.

The shift to cloud and a “heavy remote focus” disproportionally benefits Microsoft as the company is “so well positioned in its core enterprise backyard to further deploy its Azure/Office 365 as the cloud backbone and artery,” as per Ives. 

Price Action: On Tuesday, Microsoft shares closed nearly 0.3% higher at $308.23 in the regular session and rose almost 0.2% in the after-hours session.

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