Cloud lifts Microsoft's prospects

The Azure platform should provide substantial growth for several years.

Rodney Nelson 11 July, 2017 | 5:00PM

We recently raised our fair value estimate for  Microsoft (MSFT) to US$83 per share from US$77. We now have a rosier growth outlook for Microsoft's public cloud offering, Azure, as we believe the service is poised to become one of two long-term strategic vendors that enterprises turn to for the bulk of their IT infrastructure needs.

Further, our model projects incremental upside from the Office business, as we think Microsoft has mitigated most of the migration risk in its customer base with a robust set of services under the Office 365 umbrella. We now expect these offerings to serve as the most prominent revenue and profit drivers in the Microsoft ecosystem for the long term, ultimately representing more than half of the company's consolidated sales by the end of our forecast period. Although the shares have rallied considerably over the previous 12 months, we believe they still look attractive at current levels.

Microsoft has quickly emerged as one of the most important cloud computing companies in the world. Azure has established itself as the number-two public cloud platform behind  Amazon (AMZN), and it should continue to garner significant user growth as Microsoft leverages Azure-hosted software such as Office 365 and Dynamics. Public cloud represents a monumental opportunity for Microsoft as new workloads increasingly shift to the cloud, and the company has curated a rich set of software and tools that will help keep developers in the ecosystem. The rise of Azure should help make up for the Windows Server OS, which is flagging against Linux's continued rise, and it should also offset declines in other segments.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Alphabet Inc A1,433.52 USD1.08
Alphabet Inc Class C1,428.92 USD0.86 Inc2,442.37 USD1.72
Apple Inc317.94 USD-0.10
International Business Machines Corp124.90 USD0.30
Microsoft Corp183.25 USD1.02
Oracle Corp53.77 USD0.28 Inc174.79 USD-3.48

About Author

Rodney Nelson

Rodney Nelson  Rodney Nelson is a senior equity analyst for Morningstar.

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