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The story of Microsoft's cloud has become so compelling that Dan Ives is convinced that he has turned the company's stock into a better buy.
Ives, a financial analyst who covers the company for Wedbush, has added Microsoft's stock to the company's list of top ideas, claiming that growth in its cloud business will lead to a market capitalization of more than $ 1 trillion this year . The cloud market is moving in the direction of Microsoft, and the company's general manager, Satya Nadella, has positioned the software giant to capitalize on this evolution, he said.
"Microsoft remains in an enviable position for the next 12 to 18 months," Ives said in a research note released Monday. The company, he continued, "is only in its infancy in the history of a transformational cloud about to be played in the coming years".
Read it: Microsoft's cloud transformation is expected to be the next one-trillion dollar company
Under Nadella, Microsoft has turned the cloud market into a two-horse race with the first Amazon leader, said Ives. With companies rapidly moving their IT workloads to the cloud and to hybrid architectures that merge cloud computing resources with proprietary servers, the software giant is able to dramatically increase its revenue.
About 30% of companies' application loads are now in the cloud, Ives said. By the end of the year, 38% are expected to be in the cloud or in hybrid architectures, and this share will reach 55% by 2022, he said.
Microsoft occupies a prime position in the cloud market
Microsoft, however, could take a disproportionate advantage from this change. Cloud customers are increasingly demanding the ability to harness artificial intelligence and machine learning services, Ives said. These are areas in which Microsoft has invested heavily and where it seems to have a competitive advantage over Amazon Web Services, the cloud branch of the e-commerce giant, he said.
"Nadella & Co are on Catbirds' headquarters to get more complex workloads," wrote Ives.
In addition, Microsoft has established a network of approximately 70,000 partners that develop applications for its cloud service and personalize it for end customers, Ives said. It's more partners than Amazon, Google and Salesforce combined, he said. The network, along with Microsoft's reseller collection, also puts it in a good position to capture new customers and increase its share of the cloud market, he said.
AWS and Microsoft "remain the undisputed leaders … in converting enterprise customers to the cloud, with our data points indicating that partners play a more critical role in this decision, a dynamic that benefits disproportionately. [Microsoft] especially among the most important [small and medium-sized businesses]"Ives said.
The company's cloud has other advantages, he said. Microsoft already has a "massive" customer base, to which it can market its cloud services, he said. Businesses and individual customers are already moving to the cloud version of their Office 365 productivity software from previous licensed versions. Ives, reiterating its $ 90 outperformance rating and price target on Microsoft stock published in the report, has once again announced new customer opportunities for its latest online and cloud offerings. , including LinkedIn.
"This combination of dynamics should allow Nadella to further transform [Microsoft] in a cloud of behemoth over the next few years, "he said.
Microsoft has a 50% chance of winning the JEDI contract
And there's one more thing Ives is optimistic about Microsoft's efforts in the cloud, the company now has a 50% chance of winning a large and lucrative defense contract, he said. Just a year ago, Amazon's chances of winning the Common Defense Infrastructure (JEDI) contract, worth $ 10 billion over the next decade, were about 80%, he said. Both companies have lawyers and detractors in Washington, but Microsoft has caught up with Amazon in the competition over the past six months, said Ives, citing unnamed sources in the capital.
If Microsoft were awarded the contract, the market would be huge for the company's cloud sector, for the larger cloud market – and for the software giant's actions, he said.
"It would be a transformative victory that would propel the company's cloud computing ambitions in government and business," Ives said, adding that it would "have a significant impact on the next few years, which are not going to happen. is not integrated into [Wall] Street estimates. "
At the end of the day, Microsoft shares rose 69 cents, or about 1%, to $ 111.66.
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