Shares of Microsoft Corporation MSFT surged almost 8% closing at $93.78 on Mar 26. The shares were pumped up by Morgan Stanley’s note stating that Microsoft’s impressive cloud adoption will lead it to a market capitalization of $1 trillion within the next 12 months.
Notably, the company’s shares have returned 45.4% in the past year, outperforming the 13.8% rally of the S&P 500 index.
The momentum can primarily be attributed to substantial growth in strategic investments in Azure, Office 365 and Artificial Intelligence (“AI”). Moreover, LinkedIn acquired in 2016 is showing significant growth potential.
Currently, Microsoft carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Azure Gaining Traction
Azure’s prospects have been bolstered by strong adoption and an ever growing customer base.
In the second quarter of fiscal 2018, Azure revenues grew 98% at constant currency (cc) on a year-over-year basis. Furthermore, Azure premium revenues grew triple digits for the 14th consecutive quarter.
Moreover, data center expansion continues with Azure now in 42 regions globally, more than any other cloud provider. Further, the acquisition of PlayFab and Avere Systems are likely to strengthen Azure’s enterprise-strength capabilities.
Management anticipates commercial cloud gross margin to improve on a year-over-year basis, backed by Azure margin improvement.
Per Forbes, Microsoft led the cloud revenues in the calendar year of 2017. The cloud revenues reported were $18.6 billion, compared with $17.5 billion and $6 billion reported by Amazon AMZN and Alphabet’s GOOGL Google, respectively.
Per a recent Synergy Research Group article, spending on cloud infrastructure services fourth quarter fiscal 2017 increased 46% year-over-year. Highest increase of 3% in market share was recorded by Microsoft compared with 1% gain recorded by Google. Full year 2017 cloud infrastructure service revenues have surged 44% year-over-year.
CNBC revealed that per KeyBanc analysts, Azure won cloud market share over Amazon’s Amazon Web Services (AWS). AWS accounted for 62% cloud market share, 4% lower than the year-ago figure, meanwhile, Azure surged 20% from 16%.
A strong customer commitment to Azure is expected to drive cloud revenues further, keeping Microsoft unbeatable in this high return segment.
Intensifying Race to Reach $1 Trillion
Apple AAPL currently seems to be the contender likely to win the race in becoming the first trillion dollar company. The stock has returned 23.8% in the past year, outperforming 13.8% rally of the S&P 500 index.
However, Facebook has taken a backseat, for the time being. The company received flak post Cambridge Analytica scandal. We believe the recent apology comes a bit too late to salvage the damage. Nonetheless, it will take time for Facebook to steady its horses with a view to compete in the race again.
Shares of Facebook have returned 15.7% in the past year, outperforming 13.8% rally of the S&P 500 index.
The other competitors apart from Apple are Amazon and Alphabet. There is no surprise if 2019 turns to be the era of the Big 4 tech stalwarts, Microsoft being a proud one.
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