- Microsoft‘s cloud business could double in the the next three years, helping propel the company to a $1 trillion market cap, Morgan Stanley said Monday.
- The company is currently fourth in terms of market value, behind Apple, Alphabet, and Amazon.
The world’s largest companies are locked in an arms race to be the first to reach a $1 trillion market value, and Microsoft could be the winner, according to Morgan Stanley.
Microsoft’s cloud businesses could more than double in the next few years, the bank said in a note to clients on Monday. That growing unit, coupled with improving margins, could propel the stock to a $1 trillion market cap in the next year.
“With Public Cloud adoption expected to grow from 21% of workloads today to 44% in the next three years, Microsoft looks poised to maintain a dominant position in a public cloud market we expect to more than double in size to >$250 billion dollars,” analyst Keith Weiss wrote.
“Combining a durable top line growth story with improving margins drives a 17% CAGR for Microsoft’s EBIT thru CY20, to over $50 billion.”
Based on the new EBIT calculation, the bank has increased its price target for shares of Microsoft to $130 — 44% above Monday’s opening price of $90 — which would reflect a $1 trillion market cap.
Microsoft’s market cap is currently $709 billion, according to Bloomberg, putting it in fourth place behind Apple’s $854 billion, Amazon’s $738 billion, and Alphabet’s $721 billion.
In addition to its public cloud offerings and software as a service programs, like the new cloud-integrated Office products, Microsoft also has yet to unlock the full value of its $26.2 billion LinkedIn acquisition in 2016, BMO Capital Markets analyst Keith Bachman said last week.
LinkedIn accounted for just 2.5% of Microsoft’s total revenue for 2017, quarterly statements show.
“Top line drivers including Azure (Microsoft emerging as a public cloud winner), data center (share gains and positive pricing trends), O365 (base growth and per user pricing lift) and the integration of LinkedIn push top-line growth back above 10%,” Morgan Stanley said. “With stabilization in gross margins, continued opex discipline and strong capital return, we see a durable mid-teens total return profile at MSFT.”
Shares of Microsoft were up more than 6% in trading Monday and are up 7.5% so far in 2018.