Azure Skies Ahead For Microsoft? Analysts Like Continued Cloud Computing Growth

Analysts appreciated the solid earnings and outlook from Microsoft Corporation MSFT and remain bullish on the computing giant, saying it should reach the trillion dollar market cap threshold in 2019.

Wedbush analyst Daniel Ives maintained an Outperform rating with a $140 price target on Microsoft. Morgan Stanley analyst Keith Weiss has Microsoft rated Overweight, also with a price target of $140. Both analysts expect the company to hit a trillion-dollar market cap in the coming year.

Shares traded down 2 percent at $104.24 Thursday afternoon.

Results

Microsoft came in with earnings for the December quarter right around where analysts expected, but the results were reassuring as other industry players showed beginning signs of weakness.

The big upside for Microsoft was in sales of Azure, the set of cloud services Microsoft sells to businesses, allowing them to keep data remotely in the cloud. Sales of Azure were up 76 percent for the quarter year-over-year, and continued to gain market share at the expense of other players like Amazon.com Inc. AMZN.

Wedbush

Ives said the results were “another feather in the cap” for CEO Satya Nadella and the company’s quest to become a cloud behemoth.

“We believe the company’s positive outlook for the March quarter and strong underlying cloud, Office 365/Azure, and enterprise demand trends for 2019 speaks to a company still in the middle innings of a renaissance of growth,” Ives wrote in a note. “We are bullish on MSFT into 2019 given our thesis that Azure's cloud momentum is still in its early days of playing out.”

The company’s total commercial cloud computing revenue, including subscriptions to cloud-based Office 365 along with Azure, grew 48 percent.

Morgan Stanley

Weiss said Microsoft is “strong where it matters,” meaning the strong cloud business growth.

But, Weiss did inject a bit of caution into his note, reminding investors there remains risk, citing weaker results in Microsoft’s Windows business. Microsoft reported that sales of its Windows operating system were down, blaming the drop in part on a shortage in computer chips.

Weiss moved full-year revenue estimates slightly lower, though he did say full-year revenue should still sustain about 13 percent growth.

But Weiss agreed strong positioning for public adoption of cloud computing and other strengths do support Microsoft hitting the $1 trillion market cap, with top line drivers including Azure, its continuing addition of data centers and its Office 365 business suite of products.

“With improvement in gross margins, continued (operating expense) discipline and strong capital return, we see a durable teens total return profile at MSFT,” Weiss wrote.

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