Tech stocks smashing all-time highs are currently almost a daily thing. What this means for a frothy market at disconnect from the wider economy is anyone’s guess. Is a pullback imminent? No one knows, the market is unpredictable and will probably remains so for the foreseeable future or at least until the coronavirus is stopped dead in its tracks.
Tech giant Microsoft (MSFT) has been among the mega caps to clock all times highs, too. Microsoft has not only benefited from the explosive market, but also from a rising trend further accelerated by the viral outbreak.
The shift to cloud based working environments has been a boon to Microsoft and has not gone unnoticed by Wedbush analyst Daniel Ives.
The 5-star analyst noted, “Fundamentally speaking, the MSFT thesis during this COVID environment has been a two-fold strategy. The first phase has and continues to play out as MSFT’s Azure/ Office 365 product portfolio is holding up extremely well in this Category 5 storm, while investors have recognized this dynamic driving the stock to all-time highs. Now we start to enter the second phase heading into the September/December quarters as an anticipated economic rebound should put further fuel in MSFT’s growth engine.”
Whether the economic rebound will materialize remains to be seen. What cannot be argued against is the accelerated shift to remote working environments bought forward by COVID-19. This new reality is of benefit to Microsoft and, specifically, its cloud-based service Azure.
33% of businesses work is within cloud environments, a number that is expected to reach 55% by 2023. And although Azure currently occupies second place behind Amazon’s AWS in market share, Ives expects Microsoft “to lead a transformational cloud story narrowing the gap vs. Bezos and AWS into 2021.” Even taking into consideration the possibility of a recession over the next couple of quarters, Ives’ model for Microsoft indicates “we are still looking at what we value as a $1 trillion valuation cloud franchise.”
Accordingly, to reflect “Azure cloud strength,” Ives rates MSFT an Outperform (i.e. Buy) along with a $260 price target. Investors could be taking home a 25% gain, should this new all-time high be met over the coming months. (To watch Ives’ track record, click here)
The rest of the Street concurs. MSFT’s Strong Buy consensus rating is backed by 21 Buy ratings, and 1 Hold and Sell, each. However, the majority expect shares to stay range bound for now, as the current $214.17 average price target indicates. (See Microsoft stock-price forecast on TipRanks)
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