Microsoft stock will climb to $300 as the company gains cloud market share, Wedbush says

Microsoft employees

  • Microsoft stock will climb to $300 per share, according to analysts at Wedbush.
  • Analyst Daniel Ives said “recent field checks” have made Wedbush believe Azure is gaining market share in the cloud business.
  • Microsoft saw total revenue growth of 17% year-over-year and cloud revenue growth of 50% year-over-year in its most recent earnings release.
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Microsoft stock will climb to $300 as the company continues to gain cloud market share Wedbush analysts said in a note to clients on Monday.

Wedbush analyst Daniel Ives lifted the firm’s price target for Microsoft to $300 from $285 after “recent field checks” in the industry have led him to believe Microsoft’s Azure cloud business is gaining market share from the competition.

Ives had already raised his price target for the tech giant to $285 from $275 after Microsoft outperformed in its latest earnings report, but recent updates have the analyst seeing even more upside ahead.

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Microsoft beat analyst revenue and earnings estimates for the quarter that ended in December on Jan 26, turning in record quarterly revenue of over $43 billion, up 17% year-over-year, and EPS of $2.03.

Analysts were most excited by the incredible growth of Microsoft’s Azure cloud business. The segment grew revenues by 50% year-over-year versus just 28% year-over-year growth at the company’s major competitor Amazon Web Services.

Now, analysts at Wedbush believe “the tide is shifting in the cloud arms race” and Microsoft is pulling ahead of Amazon’s AWS and others due to its broad installed base of customers.

“We believe Azure’s cloud momentum is still in its early days of playing out within the company’s massive installed base and the Office 365 transition for both consumer/enterprise is providing growth tailwinds over the next few years,” Ives said.

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Wedbush also believes cloud adoption is only going to accelerate in 2021 even after a record year in 2020 due to the pandemic and stay-at-home trends.

“Based on our conversations with CIOs, CISOs, and IT product managers globally over the last month we believe cloud-driven architecture IT growth in 2021 could surpass that of 2020 as more enterprises rip the band-aid off on digital transformations,” Ives said.

The analysts continued, “we believe this disproportionally benefits the cloud stalwart out of Redmond, as Nadella & Co. are so well positioned in its core enterprise backyard to further deploy its Azure/Office 365 as the cloud backbone and artery.”

Growing market share and prime conditions for Azure are probably music to the ears of executives at Microsoft. Especially after former CEO Steve Ballmer said he wished the company had got into cloud services sooner.

“Azure — I wish we probably started a year or so, two years earlier,” Ballmer said in a live stream on Clubhouse. “We started actually with platform as a service instead of infrastructure as a service. Probably we would do that a little bit differently. It cost us a little bit of time in the eventual battle, if you will, with AWS.”

Microsoft traded up slightly in premarket hours on Tuesday at $245.50 per share, implying a potential 22% price increase based on the Wedbush analysts’ predictions.

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Why Andy Jassy should spin off the massively lucrative AWS after he becomes Amazon CEO, according to a former AWS exec

Andy Jassy
Amazon CEO Andy Jassy will face a number of tasks in his new post, including addressing the company’s lack of diversity within its leadership.

  • Amazon’s AWS executive Andy Jassy will take over as CEO from Jeff Bezos in Q3.
  • AWS is a hugely profitable part of Amazon’s business — but it could make sense for Jassy to spin it off.
  • Insider spoke to former AWS senior engineer Tim Bray about why there are “a bunch of good reasons” for Jassy to make the move.
  • Visit the Business section of Insider for more stories.

Jeff Bezos’ successor as Amazon CEO, Andy Jassy, made his mark on the company by building its hugely successful cloud computing service Amazon Web Services (AWS).

But as CEO, Jassy’s best move might be to cut off AWS from the mothership, former AWS exec Tim Bray told Insider on Thursday.

Bray was an AWS vice president and distinguished engineer who worked at Amazon for five years before publicly quitting in May 2020. At the time, Bray published a blog post saying he was resigning in protest at the company firing warehouse workers who raised concerns about working conditions during the pandemic.

Bray, who reported to Jassy during his time at Amazon and praised his management in a quote to Insider’s Eugene Kim and Ashley Stewart, told Insider there were “a bunch of good reasons” for Amazon to spin off AWS.

“AWS has both higher growth and higher margin than the mainstream retail part of Amazon,” Bray said. Amazon’s Q4 earnings showed AWS accounts for 52% of Amazon’s operating income.

“I think the likelihood that AWS does get spun off is not trivial at all.”

Read more: The 3 biggest challenges Andy Jassy will take on as Amazon’s new CEO, according to experts

Jassy has said in the past that Amazon is not looking to spin AWS out – an understandable position, given what a money maker the division has become. But Bray said an increasingly hostile antitrust landscape, combined with business incentives, could make it a wise move.

Amazon’s continued expansion into different business sectors means AWS’ customers may increasingly also be Amazon competitors, and therefore Jassy might be reluctant to shovel lots of money into AWS in future, Bray said. “I think that in itself is a large and growing headwind for AWS and is not going to get any better,” he said.

It would be possible for Amazon to cut ties with AWS without totally sacrificing its cash-cow status, he said.

“You can imagine a maneuver where AWS does an IPO, does a cash payment to Amazon of 50 to 100 billion or something like that,” he said, citing an Economist article from June 2020 that gave AWS a “plausible” valuation of $500 billion.

This isn’t the first time Bray has said AWS should be spun off. He gave an impassioned speech to Amazon workers at a union conference in June 2020 about why governments should break up Amazon from AWS.

“Why on earth should an online retailer, a cloud computing company, a smart speaker company, an organic supermarket company, and a video production company all be conglomerated into one corporate entity controlled by one person?,” Bray said at the time.

Bray: Jassy could get ahead of regulators by spinning off AWS

Bray told Insider on Thursday that Jassy could spin off AWS before it starts to heap more regulatory scrutiny on Amazon.

“If [spinning off AWS] is going to happen, Amazon would be better off to do it under their own volition in a planned way as opposed to the Justice Department pointing a gun at their head.”

Bray said cloud computing could become a big target for lawmakers looking to rein in Big Tech, as the market is essentially dominated by Amazon, Google, and Microsoft. As of Q4 2020, Amazon’s market share totalled more than Google and Microsoft’s combined, per data from analytics firm Canalys.

He said the wealth of Big Tech antitrust concerns gives Amazon some wiggle room. “It’s an issue, but I think there’s lots of other, hotter ones in the queue in front of it,” he said.

Google and Facebook’s ad business is the “biggest, softest target of all of them,” Bray said. Other big targets are Google’s wider business and Apple’s online services business, which is already starting to draw the attention of regulators both in the US and the EU.

Amazon is already under the antitrust microscope along with the other tech giants, but so far lawmakers have honed in on its marketplace business, and whether it unfairly disadvantages third-party sellers.

The antitrust pressure from Washington looks set to mount rather than wind down. Sen. Amy Klobuchar has become the new chair for the Senate Judiciary subcommittee on antitrust, and has made it clear that Big Tech is in her crosshairs. On Thursday, she introduced a bill that would grant antitrust enforcement agencies sweeping new powers, including the ability to impose massive fines of 15% on companies’ annual revenue.

Bray said Jassy would have to navigate the ongoing “techlash,” and suggested that he may do a better job than Bezos.

“Jeff has obviously been an outstanding executive. Has he done a very good job of positioning the company in the public mind? Not really, I wouldn’t say. He’s not a gifted communicator to the public,” he said.

“Maybe Andy will do better at that, because I think they need that,” he added.

Read the original article on Business Insider