Usually, companies as old as Microsoft (NASDAQ:MSFT) aren’t considered “story stocks” at this point in their histories. But at the end of 2019, MSFT stock has a market capitalization north of $1.2 trillion and a 2019 gain of 55%.
That easily makes the technology giant one of the best-performing names in the Dow Jones Industrial Average this year. Can MSFT stock price gain 50% or more in 2020? Probably not. But maybe I’m just being conservative because if Microsoft stock climbs another 50%, it will have an unheard of market value of $1.8 trillion or more.
As has been widely documented, the primary piston driving the Microsoft stock engine this year has been the growth of MSFT’s Azure cloud business. That’s the same unit that’s becoming a real thorn in the side of Amazon’s (NASDAQ:AMZN) cloud business, Amazon Web Services (AWS). In the most recently completed quarter, Azure sales surged 59%, while the revenue of AWS climbed “just” 35%.
While Microsoft stock may not repeat its 2019 feats next year, Wall Street is still bullish on the name . As I pointed out ina column published on Dec. 17, Wedbush analyst Daniel Ives reiterated an “outperform” rating on the shares while increasing his price target to $185 from $170. Not surprisingly, Azure was a big factor behind Ives’ bullish commentary.
“Microsoft remains in an enviable position heading into 2020 on the heels of its cloud success as it continues to fire on all cylinders around its Office 365 and Azure strategic vision,” said the analyst in a note to clients.
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With Microsoft stock, it’s easy to be attracted by Azure, particularly following the company’s recent win of the $10 billion JEDI contract from the Pentagon and amid expectations that the company is a legitimate threat to AWS. However, investors should consider some of the other compelling catalysts of MSFT stock.
The business app market stands out as fertile territory for Microsoft. Among its offerings in this space are Power BI, Power Apps, Power Automate and Power Virtual Agents. This stuff sounds complex, and some of it is, but these programs are aimed at helping non-technical employees use analytics more effectively, They also provide modification tools and bolster automation. Analysts are aware of this opportunity for Microsoft stock.
“While still in the very early innings, we expect the Power Platform to remain a key focus area for the company going forward and could also help inform Microsoft’s long-term M&A strategy,” said Evercore ISI analyst Kirk Materne in a recent client note. “We believe Power Platform’s strategic value in terms of aligning Microsoft with key digital transformation initiatives is an important part of the broader cloud strategy.”
Power Virtual Agents, those chat boxes you see on the side of your screen when you visit certain websites, on their own could be an epic market for Microsoft, and the company is integrating it with a number of its other products.
“To further extend the capabilities of Power Virtual Agent, Microsoft announced the tools will integrate with Power Automate and Microsoft Flow,” notes Opus Research. “The platform can be used to create comprehensive dialog systems and automated intelligent assistants for Microsoft Teams, Facebook, Slack, etc. According to Microsoft, users can trigger actions based on bot data collection and provide advanced analytics to gain business insights and optimize business outcomes.”
The Bottom Line on MSFT Stock: There’s a Great Deal to Like
Azure is definitely a cornerstone of the positive thesis on Microsoft stock, and the Power Platform could attain a similar status. But think about this: I still haven’t mentioned the monopoly that is Office 365.
Also left unexplored was Xbox, which is a legitimate 2020 catalyst due to the new video game consoles expected to become available just in time for the 2020 holiday shopping season.
And I also haven’t mentioned Microsoft’s $136.6 billion cash hoard, its rising dividend and its proclivity for big buybacks of MSFT stock. Those traits are likely baked into the stock, but a rising payout is a nice kicker.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities