Nasdaq MSFT MicroSoft

Microsoft Corp. reported stronger-than-expected 2Q results (ending Dec. 31, 2020), driven by demand for its cloud computing services during the coronavirus pandemic. Shares of the software company increased 3.7% in Tuesday’s extended trading session.

Microsoft’s (MSFT) 2Q earnings of $2.03 per share increased 34.4% year-over-year and crushed the analysts’ expectations of $1.64 per share. The tech giant's 2Q revenue grew 16.8% to $43.1 billion year-over-year and topped the consensus estimates of $40.2 billion.

Microsoft’s CFO Amy Hood said, “Accelerating demand for our differentiated offerings drove commercial cloud revenue to $16.7 billion, up 34% year over year.”

The tech giant's cloud platform Azure saw 50% growth during the quarter, as more enterprises shift to cloud computing. Meanwhile, Xbox revenue was up 40% from the year-ago period.

Revenues generated from the company's productivity and business processes segment increased 13% year-over-year. Furthermore, intelligent cloud and personal computing segments' sales grew 23% and 14%, respectively, on a year-over-year basis. (See MSFT stock analysis on TipRanks)

Following the results, Wedbush analyst Daniel Ives maintained a Buy rating and a price target of $270 (16.2% upside potential) on the stock. Ives said, “With a vaccine being deployed globally, the WFH [work from home] shift will clearly moderate as many return to the office during the course of 2021."

"However, from an IT [information technology] architecture perspective, the cloud shift will continue to gain speed as many CIOs [chief information officers] aggressively go down the digital transformation path with MSFT's Azure/Office 365 footprint as the main enterprise cloud artery,” the analyst added.

Overall, the rest of the Street has a firmly bullish outlook with the analyst consensus of a Strong Buy based on 23 unanimous Buys. The average analyst price target of $253.30 implies upside potential of about 9% to current levels. Shares have gained by about 42.3% in one year.

What's more, MSFT scores a perfect 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

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Microsoft (MSFT) will report F2Q21 earnings today after the bell, and Wedbush analyst Daniel Ives believes there is enough evidence to suggest the tech giant will post another "beat and raise special."

As with many companies offering cloud-based solutions, Microsoft has undoubtably benefitted from the Covid-19 driven trends, but Ives expects the tech giant to keep on reaping the rewards of the change in workplace behavior.

“This current work from home environment is further catalyzing more enterprises to make the strategic cloud shift with Microsoft across the board with Azure growth remaining brisk,” the 5-star analyst said. “In many cases we are seeing enterprises accelerate their digital transformation (larger deals) and cloud strategy with Microsoft by 6 to 12 months as the prospects of a semi remote workforce for the foreseeable future looks here to stay.”

The good news for Microsoft, says Ives, is that there is still much room for growth, with the company only “~35% through penetrating its unparalleled installed base on the cloud transition.”

Ives thinks companies are allocating an increasingly large chunk of budgets toward transitioning to the cloud and believes 85-90% of 2021 cloud deployments have already been given the go ahead by company execs. Microsoft is the “core cloud name to play this transformational secular trend.”

With vaccines being deployed across the globe, and the return of many to office work, the WFH tailwind is set to subside over the next year, but Ives believes Microsoft should be insulated from the return to normality, expecting the cloud shift “to gain speed as many CIOs aggressively go down the digital transformation path.”

Ives also expects Microsoft’s Azure/Office 365 footprint to expand and narrow the gap on segment leader Amazon Web Services (AWS) in 2021.

Accordingly, to reflect “stronger than expected checks and cloud secular tailwinds,” Ives slightly lifts his MSFT price target from $260 to $270. Naturally, Ives’ rating for the tech giant remains an Outperform (i.e. Buy) (To watch Ives’ track record, click here)

The Wedbush analyst’s call receives the Street’s unanimous backing. With Buys only – 23, in total – the stock qualifies with a Strong Buy consensus rating. The forecast is for upside of ~9% in the year ahead, given the average price target stands at $253.30. (See MSFT 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.