We are currently in the midst of a digital transformation at the workplace. But the move to cloud-based architectures is still in its early stages, says Wedbush analyst Daniel Ives. Surveying the movers and shakers of this secular trend, Ives sees one company poised to benefit the most from this shift.
“Our recent mid-quarter September checks for Microsoft (MSFT) have shown incremental strength again as the Azure cloud growth story is hitting its next gear of growth in Redmond,” the 5-star analyst said.
Ives claims deal sizes continue to “increase markedly,” with Office 365/Azure combo deals looking particularly strong. The analyst says that heading into FY22, only roughly 35% of Microsoft’s “unparalleled installed base” has so far transitioned to the cloud. That said, CIOs are giving top billing for this “highest IT priority” and Ives estimates 85% to 90% of cloud deployments have already been given the go ahead by CIOs.
Recent Office 365 price hikes for 2022 are unlikely to affect this transformation. In fact, Ives says the price increase was a “smart strategic poker move that could be another $5 billion+ incremental tailwind for Redmond in 2022, giving more confidence that numbers could continue to move up higher looking ahead.”
And looking ahead, cloud workloads are set to increase over the next few years, from 40% today to 45% by the end of the year and by 2022 to 55%, with global cloud spending crossing the $1 trillion mark over the next decade. And while the cloud opportunity is one coveted by mega cap peers Google, IBM and particularly Amazon, Ives believes Microsoft is “firmly positioned to gain more market share vs. AWS in this cloud arms race.”
Ives confidence is conveyed by a price target raise. Reflecting “incremental deal flow strength,” the figure moves from $325 to $350, implying shares could be adding 16% of muscle in the year ahead. Ives’ rating stays an Outperform (i.e., Buy). (To watch Ives’ track record, click here)
None of Ives colleagues have any bones to pick with his assessment. MSFT stock’s Strong Buy consensus rating is based on a unanimous 26 Buys. Meanwhile, the $326.92 average price target suggests room for ~9% upside from current levels. (See Microsoft stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.