Wedbush analyst Dan Ives said Microsoft's stronger-than-expect customer inflows from Azure, its business-focused cloud services offering, as well as the $10 billion 'JEDI' contract with the Pentagon that it won from prohibitive favorite and cloud-space rival Amazon (AMZN) - Get Report earlier this year, could trigger a bull case for the stock that justifies a $210 share price. At present, Ives' $195 price target -- matched with an outperform rating -- is the highest on Wall Street.
"Enterprise customers and partners we have spoken to over the past few weeks indicate a clear acceleration of larger and more strategic enterprise cloud deals as Redmond is poised to win the majority of the next phase of cloud deployments vs. the likes of Amazon and Bezos," Ives said. "To this point, we continue to believe the ripple effect from Microsoft's landmark JEDI deal victory announced by the Department of Defense in October will be felt for years to come on both the government and enterprise fronts and thus indicates a seminal moment in the cloud battle between these two stalwarts."
Microsoft shares were marked 1.16% higher in early Thursday trading to change hands at $162.00 each, an all-time high and a move that would lift the stock's six-month gain to around 19%.
Revenue growth from Azure slowed to 59% over Microsoft's fiscal first quarter, which ended in September, a torrid pace but down from the 76% rate it had seen last year.
Still, revenues from Microsoft's workhouse 'intelligent cloud' division rose 27% to $10.8 billion, a figure the company expects to improve to between $11.24 billion and $11.45 billion in the current quarter.
Microsoft, which has a near 20% share of the global cloud infrastructure market, behind only that of Amazon, said at the time it sees "double digit revenue and operating income growth, driven by continued momentum in our commercial business" for the 2020 fiscal year, with a slight improvement in operating margins.
With roughly 32% of workloads in the cloud today and poised to hit 55% by 2022, we believe (CEO Satya) Nadella & Co. are in the catbirds seat to get more of these complex workloads as more enterprises take the leap to a hybrid cloud architecture," Ives said. "While today Amazon is the clear leader in the market, in our opinion Microsoft is "closing the gap" as based on our checks Redmond is experiencing an acceleration of spending among enterprises around both public and hybrid cloud deployments, especially with the momentum through its all-important partner channel.
"The cloud story at Microsoft is showing no signs of abating with higher margin cloud sales opening up the next phase of growth," he added.