More often than not, the worst time to buy a stock is when it is at or near a 52-week high. Microsoft (NASDAQ: MSFT) stock, however, is an exception to the rule.
Shares of Microsoft have surged more than 44% since January, buoyed by growth in its cloud computing business, including its high-profile victory over Amazon (NASDAQ:AMZN) for the Pentagon’s $10-billion JEDI contract.
MSFT stock has outperformed rivals such as Amazon , which rose 18% along with Oracle (NASDAQ:ORCL) and Alphabet (NASDAQ:GOOGL), which both gained 25%. The broader market, as represented by the S&P 500 index, jumped 23% since the start of the year.
The average 52-week price target on MSFT stock is $160, roughly 9% higher than where it recently traded. I think the stock has more room to run as it continues to gain share in the cloud market at Amazon’s expense. The last quarter was a case in point, when revenue in Microsoft’s commercial cloud business which includes cloud services, Office 365 and Azure, hit a record $11.6 billion.
Cloud Sector Evolving Microsoft’s Way
According to Wedbush Securities Analyst Daniel Ives, the sector is evolving to handle more complicated tasks such as artificial intelligence and machine learning, which plays to MSFT’s strength. He rates MSFT stock as outperform and has a $160 price target, the highest of any analyst.
“Enterprise customers and partners we speak to indicate a clear acceleration of larger and more strategic enterprise cloud deals (both domestically as well as in Europe) as we believe Redmond is poised to win the lion’s share of the next phase of cloud deployments vs. Amazon and Bezos,” he wrote in a recent note to clients. “We continue to believe the ripple effect from Microsoft’s landmark JEDI deal victory announced by the Department of Defense will be felt for years to come on both the government and enterprise fronts and thus indicates a seminal moment in the cloud battle between the two stalwarts.”
MSFT currently handles 32% of cloud workloads today and should see its share surge to 55% by 2022. The company’s emphasis on hybrid clouds which combine public and private op also is paying off. According to the RightScale 2019 State of the Cloud Report from Flexera, 58% of enterprise customers were using the hybrid strategy, an increase from 51% from a year earlier. Overall, cloud spending is expected to rise 24% this year from 2018, according to the report.
Other MSFT Businesses Doing Well
The other parts of MSFT are also performing well. PC sales are on the rise because Microsoft will quit supporting Windows 7 at the end of the year. Companies are buying machines powered by Windows 10. As a result, revenue in the Window’s OEM business rose 9% during the last quarter. Windows Commercial products and cloud services sales surged 26%.
The weak points in the quarter were MSFT’s Xbox game console and its Surface tablets, but those businesses are trending in the right direction. Xbox gamers are waiting “Project Scarlett” slated to arrive next holiday with four times the power of the Xbox One X complete featuring 8K resolution, among other things. Two new Surface models are slated to be released next year.
In summary, the time is right to buy MSFT stock because Wall Street analysts will eventually see that they have underestimated the company yet again.
As of this writing, the author did not hold a position in any of the aforementioned securities.