Citing Microsoft’s (MSFT) - Get Report exposure to cloud spending and other businesses that likely aren’t going anywhere, Wedbush analyst Dan Ives pegged the software giant as the tech name that stand out as the best opportunity amidst the coronavirus-related selling of recent weeks.
“MSFT at these levels we view as a golden cloud tech name to own for those willing to navigate the volatility of this ’shock event’ and see the forest through the trees on this cloud behemoth,” Ives wrote in a note on Tuesday. He added that “while this is an unprecedented and fluid situation with the coronavirus outbreak, we remain firmly bullish on shares of MSFT at these levels.”
Ives said he believes that 80-90% of Microsoft’s valuation is based on its flagship Azure, Office 365 and corresponding enterprise driven franchises, and that after stress testing his model, Ives considers more than 90% of this revenue as “essential/high priority” for enterprises. And even with a 10%+ reduction in revenues for those businesses due to a weaker economic environment, that still translates into a $900 billion to $1 trillion valuation for Azure based on Wedbush’s 2021 fiscal year revenue and EPS targets.
Ives maintained his outperform rating and $210 price target on the stock. Shares were rising 4.7% to $157.72 on Tuesday morning.
“While volatility and white knuckles will rule the day for the coming days/weeks, etc, we believe MSFT remains the best way to play the transformational cloud shift for the coming years,” Ives concluded.