not a good start to the year
But the outlook for the stock is strong for at least one major reason: continued growth in cloud software.
while the shares
(ticker: MSFT) has fallen some 5% since the start of 2022 – amid widespread pressure on the technology sector – reflecting a remarkable performance over the past year. The stock has climbed nearly 50% since early January 2021, including gains among peers in Big Tech
But it has ended the second week of 2022 with a share price of only $318. This is well below the $372 average target price calculated from dozens of analyst estimates entered in FactSet data and up 17% from the mean.
Microsoft is one of the favorite tech stocks of 2022 for broker and analyst Dan Ives of investment bank Wedbush, which is bullish on the broader sector. Wedbush has a target price of $375 with a rating of outperform on Microsoft.
Over the course of the following year, Ives watched Microsoft stock head to the elusive $3 trillion market cap milestone — a level of market cap that was only seen by another public company: Apple, which it touched earlier this year. .
Investors can thank cloud software for that. The COVID-19 pandemic has accelerated massive digital transformation in companies, fueling the sale of cloud software and services, which are programs that run on remote servers instead of in-house machines. Microsoft—and its Azure cloud computing service—has been a major beneficiary. This should continue.
Ives said the December quarter checks for Microsoft show incremental strength for Azure. Wedbush believes the company has more than 50% of the big, “transformative” cloud deals and is gaining momentum for the rest of the year.
Ives said, “Despite the tightening of multiple/valuation compression and Fed backdrop, we believe Microsoft stock will continue to rise over the next six to nine months as the Street continues to underperform the underlying growth story.” being judged.” “We believe Microsoft is well on its way to a market capitalization of $3 trillion over the next 12 months.”
The strength at Microsoft comes even as some see pressure on the broader software sector. Swiss bank analysts in a report this month
It has underscored why they remain bullish on Microsoft, while they have cut their outlook on the software sector at large, including downgrading.
In short, UBS believes that pandemic trends over the past 18 months have driven greater demand for the software than most investors thought. This could turn more moderate spending growth into a real blow to some companies and shareholders in the coming earnings season.
Microsoft is an exception.
“Migration activity to AWS, Microsoft Azure and Google Cloud is not decreasing,” said analysts at UBS, led by Karl Kirstedt. “This trend anchors our belief not only in Microsoft, but in”
(DDOG) and others who are indirect beneficiaries.”
Ives reached a similar conclusion. “We believe the Street’s view of moderating cloud growth on the other side of this work-from-home cycle (and a noisy macro) is contrary to the deal activity Microsoft is seeing in the field,” said the Wedbush analyst.
Write to Jack Denton at [email protected]