Microsoft poised to benefit from 'robust' cloud spending this year: Wedbush
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Microsoft (NASDAQ:MSFT) is likely to benefit from strong cloud spending this year, Wedbush Securities analyst Dan Ives wrote in a research note, adding that the Redmond, Washington-based company is seeing "incremental strength" in its Azure cloud.
Ives, who has an outperform rating and a $375 price target on Microsoft, noted that "large transformational cloud deals" are north of 50% at Microsoft, with "clear momentum heading into 2022 and also some incremental share gains from AWS could be in the cards."
Ives added that it's likely that Azure growth could exceed 43% this quarter and the concern from Wall Street of moderating cloud growth is contrary to what Microsoft is seeing with its recent deal activity.
"While we have seen the momentum of this backdrop in the last few years, we believe deal flow looks incrementally strong (Office 365/Azure combo deals in particular) heading into CY22 as we estimate that Microsoft is still only ~35% through penetrating its unparalleled installed base on the cloud transition," Ives wrote.
Microsoft (MSFT) shares are fractionally lower on Thursday, trading at $318.18.
In addition, Ives noted that the Office 365 price increase this year was a "smart strategic poker move" that could generate another $5 billion in revenue for Microsoft this year.
With Azure "well positioned" to gain further market share in cloud computing and the company's massive installed base and Office 365 transition, Ives said Microsoft could hit a $3 trillion valuation in the next 12 months, a milestone that's some $600 billion away from current levels.
Nonetheless, Microsoft (MSFT) is poised to benefit from the ongoing digital transformation, as workforces are largely expected to remain remote over the next several years and the "cloud shift is just beginning to take its next stage of growth globally."
On Thursday, the U.K.'s Competition and Markets Authority said it was formally investigating Microsoft's (MSFT) planned acquisition of Nuance Communications (NASDAQ:NUAN).