Microsoft’s (NASDAQ:MSFT) latest earnings report on Jan. 29 maintained a familiar, impressive narrative. Its Azure cloud business continued to demonstrate its position as a growth powerhouse, with revenue growing 62% year over year. This has helped Microsoft stock power 15% higher so far in 2020. And some analysts expect the stock to climb another 15% over the next 12 months.
However, the average analyst expectation — a price target of 196.79 (about 7% up from current prices) — is much more tame.
So who should we listen to? Is it time to join the party in Microsoft stock, or is more patience required in light of its impressive earnings beat?
Important Things to Consider With Microsoft Stock
While the average price target on Microsoft has yet to shift much after its latest earnings report, many analysts have boosted their expectations for its revenue gains in subsequent quarters.
Analysts and Main Street agree that the success of Microsoft’s cloud platform, Azure, is a pivotal piece of Microsoft’s long-term bull case. It has also helped it constantly contend with Apple (NASDAQ:AAPL) for the title of largest company in the world.
In fact, Eric Fry, Editor of Fry’s Investment Report, places Microsoft among the “Big 5” stocks that have ruled the S&P 500 over the past five or so years — boasting a 387% gain in that time frame as of his writing. A big part of that lift is due to its advancement in cloud technologies, which is second only to Amazon’s (NASDAQ:AMZN) Amazon Web Services.
And that leadership gap is constantly diminishing with Amazon’s growth in the space slowing down. While it’s unrealistic to expect Amazon to lose the No. 1 spot any time soon, what Microsoft can do is keep leeching new customers from the e-commerce behemoth by establishing its position as the “best” choice in cloud.
The fact that it has recently managed to “steal” promising government contracts from Amazon is often cited as evidence of its growing respect among perspective customers. While I understand why investors might be optimistic about this deal, it isn’t done yet. In fact, a judge temporarily blocked the JEDI contract as Amazon’s lawsuit works through the court.
The Bottom Line on Microsoft
Microsoft is an interesting case of what was once a seemingly quaint dinosaur — “Mr. Softie” — managing to roar back into modernity and make itself relevant again with its pursuit of pertinent advancements at the edge of countless other technological innovations.
The cloud helps make the world a more efficient space, both personally and professionally. And if its growth path over the past few years is any indication, Microsoft will continue to push its strength in this space for years to come.
It’s usually not wise to jump in when everyone else is buying — at least if you want a strong bargain. So this is less of a buy recommendation at current prices and more of an examination of the longer-term prospects that continue to make the stock tick moving forward.
It doesn’t seem like Microsoft’s success in the cloud will slow down any time soon. And as InvestorPlace.com Markets Analyst Luke Lango puts it, “History shows that as goes Microsoft’s cloud business, so goes Microsoft stock. So, as Microsoft’s cloud business roars higher in 2020, Microsoft stock should follow suit.”
That inevitability certainly makes it a key stock to watch in the months ahead. It also gives good reason to consider buying it on a dip.
Robert Waldo has been a web editor for InvestorPlace since 2016. As of this writing, he did not hold a position in any of the aforementioned securities.