Brocker.Org: Credit Suisse Bullish on Microsoft Cloud Business


Investors may be reacting negatively to Microsoft Corp.’s (MSFT) quarterly earnings result, but at least one Wall Street analyst is bullish on the software giant.

On Thursday, Credit Suisse initiated coverage of Microsoft with an outperform rating and a price target of $80 a share, implying upside of more than 17%.

The way analyst Michael Nemeroff sees it, Microsoft will see big earnings growth and earnings power over the course of the next few years thanks to growth in its commercial cloud computing business and higher gross margins for the unit. The analyst said in a research report to clients covered by that its Azure cloud platform will see steady improvements and market share gains. The analyst said also that driving growth for Microsoft will be Office 365 in the commercial market, which the analyst said will continue to gain momentum as it expands further into the market and improves the monetization of its online offering. (See also: Microsoft’s Azure Cloud Revenue Estimated at $3B.)

Azure Vs. Amazon

Credit Suisse’s call on Microsoft and its growing cloud business comes a day before Pacific Crest Securities moved to downgrade cloud rival Inc. (AMZN) because of Microsoft’s progress in the market. According to Pacific Crest Securities analyst Edward Yruma, who lowered his rating on Amazon to sector weight from overweight, rivals in the world of ecommerce and cloud computing may be closing in on it. In the cloud computing market where Amazon’s Amazon Web Services (AWS) unit has been dominant, the analyst said its rapid growth rate is slowing as Microsoft’s is picking up.

According to Pacific Crest Securities, for all of 2016, Microsoft saw its cloud business increase 52% year over year. That compares to AWS, which the analyst said saw a slowdown of growth to 43% year over year. In the fourth quarter the growth rate was 47% growth. “Despite our view that AWS can maintain a multiyear lead, cloud competition should intensify through 2017,” Yruma said in a research report to clients that was reported by MarketWatch. (See also: Microsoft, Google Eat Away at AWS in Web Hosting.)

Microsoft has been making a big push into the cloud market given the lucrative nature of the business and the growing demand by corporations to move their hardware and software off site and into the cloud. Earlier this month, the Redmond, Wash.-based tech giant confirmed that it paid an undisclosed amount to acquire San Francisco software startup Deis, meaning that Microsoft’s Azure cloud service will now be equipped with increasingly popular container technologies. Deis’ open source tool uses Kubernetes, a sophisticated software that enables developers to build codes in a virtual box that can easily be shared and moved between applications and across clouds. The technology, which was originally developed by Alphabet Inc.’s Google (GOOG), is popular with businesses because it allows them to automate the deployment, scaling and management of applications better than ever before.