Updated from 9:16 a.m. to include additional analysis about Apple's software revenue in the fifth paragraph.
Since details leaked that Nadella, who took over from Steve Ballmer earlier this year, would announce Microsoft Office will come to Apple's iPad next week, investors have been rewarding Microsoft, crossing $40 for the first time in a long time. That marks a stark contrast from Ballmer, who had been resistant to putting Microsoft's enterprise software and one of its primary revenue drivers, on Apple's tablet.
It's expected that Microsoft will make the announcement, allowing iPad users to use Office with an Office 365 subscription.
Jefferies analyst Ross MacMillan boosted his price target and earnings estimates for Microsoft, following the rumors that Microsoft will unveil Office for iPad next week, noting that moving Office to the world's best selling tablet could be bigger than originally estimates. "Our updated analysis suggests that O365 could be a bigger driver than we previously assumed," MacMillan wrote in the note. "We now think native Office for iPad (available through an O365 subscription) could drive $2-4 incremental value per share predominantly from the consumer market."
MacMillan raised his price target to $47 from $42, but kept his "buy" rating on shares.
Not only does this boost Microsoft by opening up Office to Apple's iOS platform, it boosts Apple as well. Apple has worked hard to make software and services a more important part of its business, due to the notion software and services companies trade at higher earnings multiples than traditional original equipment manufacturers. By taking it's standard 30% cut of all software purchase, Apple could boost its iTunes/Software/Services revenue drastically with Office being made available on the iPad. Last quarter, Apple's iTunes/Software/Services segment generated $4.397 billion in sales, up 19% year over year.