Microsoft Azure Funnels Optimism Into Company’s Future

Jul 9, 2020
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Software giant Microsoft Corporation (NASDAQ:MSFT), like other cloud services providers, is poised to benefit from the post-pandemic global economic environment. Shifts in populations' work and study habits have driven up demand for notebooks and digital services. Additionally, the need for high-performance computing resources for research, telecommunications and other purposes has ensured that companies such as Amazon.com, Inc, NVIDIA Corporation and Microsoft witness increasing demand for their products and services.

To that end,  Wall Street analysts are expressing optimism about Microsoft's Azure business with both Goldman Sachs and Wedbush Securities raising their price targets for the company due to strong potential for the cloud computing platform.

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Out of the two research notes, the one by Wedbush analyst Daniel Ives is more optimistic as it sets a $260/share price target for Microsoft. Based on the company's closing price yesterday, this factors in a 22% upside for the company, and Ives bases this on Microsoft's success with secure more contracts for Azure in June.

Ives believes that the shift in work and study needs has catalyzed this growth and caused corporations to accelerate their shift to cloud platforms for enterprise needs. This shift will translate into a widening customer base for Microsoft over the next six to twelve months, believes the analyst, as according to him, the aforementioned shift in user behavior ushered in by the pandemic is here to stay.

Subsequently, not only does the analyst hike Microsoft's price target, but he also shares the belief that Azure's and Office 360's best days are ahead of them due to partial utilization of Azure by its installed base and a transition to Office 360 that is still in its early stages.

In similar vein, Morgan Stanley analyst Keith Weiss has also raised the bank's price target for Microsoft. While Morgan Stanley isn't as bullish as Wedbush is, its new price target of $230 is a 16% increase over the previous value and it factors in an eight percent upside over the company's closing share price on Thursday. Weiss' reasoning is similar to Ives' beliefs as he too is optimistic about Azure's potential.

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The analyst also uses Goldman Sach's survey of Chief Information Officers (CIO) to justify strong growth potential for Azure. This survey reveals trends similar to the ones expected by Ives, with the corporate acceleration towards cloud services in the post-pandemic world already having kicked off and expected only to grow in the future. Weiss also believes that Microsoft is the CIO preferred provider of cloud services, and this preference will enable the company to maintain a growth trajectory with the service in the future. Unlike Ives however, the Goldman analyst does not provide a timeframe for this growth.

Despite a greater reliance on cloud platforms, Microsoft's growth in Azure dropped in the company's first calendar quarter of 2020. Given the latest analyst talk surrounding the platform, one is led to believe that this trend will stop and reverse in the company's upcoming earnings report and in the future.

Microsoft Azure was initially known as Windows Azure before the company rebranded the platform. It provides customers with infrastructure, software and platform services for their needs and covers more than 600 services, Some of these services include data management, storage services, internet of things (IoT) and blockchain management.

Following lockdowns all over the globe, Microsoft revealed in March this year that usage of its Microsoft Teams application had grown by a staggering 775% as users turned to video conferencing applications in droves. Microsoft offers services in Azure that allow Microsoft Teams users to allow workforce monitoring and activity planning among other opportunities.

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