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Microsoft could be the next company to join the $1 trillion club — here’s what will get it there (MSFT, AMZN, GOOGL)

The cloud industry is set to grow rapidly, and Microsoft is well-positioned to benefit from its expansion, Wedbush analyst Daniel Ives said in a new report. The company has a huge network of technology partners, a sizeable sa...

Microsoft CEO Satya Nadella speaks to guests at an Economic Club of Chicago dinner on October 3, 2018 in Chicago, Illinois.

  • The cloud industry is set to grow rapidly, and Microsoft is well-positioned to benefit from its expansion, Wedbush analyst Daniel Ives said in a new report.
  • The company has a huge network of technology partners, a sizeable sales force, and a massive number of customers who already use its products, Ives noted.
  • With the likely boost from its cloud offerings, Microsoft looks set to become the next company to have a market capitalization of at least $1 trillion, he said.

Microsoft's cloud business could soon lift the company into the ultra-exclusive trillion dollar club.

Businesses — small, medium, and large — are increasingly shifting their computing needs and corporate apps from their own servers to the cloud, said Wedbush financial analyst Daniel Ives in a new research report. As they do, the software giant stands to benefit in a big way, since it has become the chief rival to Amazon in the cloud industry, he said.

The boost the company is set to get from its cloud business will likely lift its market capitalization about $1 trillion, he said. That's a level only Apple is at currently among public companies.

Microsoft "is on pace to be the next member of the trillion dollar market cap club," said Ives in the report, which represented the initiation of his coverage of the company for Wedbush.

Microsoft is the third most valuable publicly traded company in the United States after Apple and Amazon, with a market capitalization of $846 billion.

Corporate spending on cloud services, already growing rapidly, is set to grow even faster next year, he said, citing Wedbush survey data. Around 30% of the work corporations are doing with applications is now being done either in the cloud or in hybrid systems that combine cloud computing and companies' own servers, Ives said. That proportion should hit 38% by the end of next year and 55% by 2022, he said.

Thanks to that shift, there should be healthy demand for cloud services for at least the next year to 18 months, Ives said. And that demand should offer a big opportunity for Microsoft.

Microsoft's partners and sales force could give it a boost

The company's offerings, which include its Azure cloud computing offering and its cloud-base Office 365 productivity suite, already have "clear momentum" among enterprise customers and Microsoft's technology and sales partners, Ives said. The huge numbers of users of its desktop and other software should give it a leg up as those users start adopting cloud services, he said. The company should also benefit from its large sales force that's dedicated to selling its cloud offerings and its partners, especially as small and medium-sized businesses start to move to the cloud, he said.

"This combination of dynamics should enable [CEO Satya] Nadella to further transform [Microsoft] into a cloud behemoth over the coming years and translate to further earnings and multiple expansion in 2019," said Ives, who gave the company an "outperform" rating and a $140 price target.

In recent trading on Friday, Microsoft's shares were up 25 cents, or 0.2%, to $108.75.

Microsoft's network of cloud partners, which help companies build and adopt cloud services that run on Azure, could be its secret weapon, he said. It now has some 70,000 such partners, which is more than Amazon, Google, and Salesforce combined, he said. 

That partner network, plus Microsoft's sales team, and the investments it's made in artificial intelligence, should help it in its battle with Amazon, he said.

Those capabilities offer "a unique value proposition that puts [Microsoft] in a differentiated position to drive cloud sales for 2019 and beyond and help shape the future growth trajectory in Redmond," Ives said.

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