MORGAN STANLEY: This is why Microsoft could become a $1 trillion company in the next year
- Analysts at Morgan Stanley think Microsoft is just 12 months away from becoming the first $1 trillion company.
- To get there, Microsoft will have to grow Azure, its public cloud business, and expand its margins.
- Cloud adoption is expected to double in the next three years, and Morgan Stanley believes Microsoft is poised to win big when it happens.
Growing interest in the public cloud could make Microsoft the first company to fetch a $1 trillion valuation, according to investment firm Morgan Stanley.
In an note published Monday, Morgan Stanley analyst Keith Weiss raised his price target for Microsoft from $110 per share to $130 - a gain which would put Microsoft at a market cap of $1 trillion.
Microsoft shares finished Monday's regular trading session at $93.78, for a total market cap of $722.1 billion.
Though no company has hit the trillion dollar mark yet, it's widely been seen as a race between Apple and Google.
Microsoft, however, is in a good position in the next 12 months if it does two key things, according to Weiss: grow its public cloud business and improve its profit margins.
"With public cloud adoption expected to grow from 21% of workloads today to 44% in the next three years, Microsoft looks poised to maintain a dominant position in a public cloud market we expect to more than double in size to [over] $250 billion dollars," Weiss wrote.
"At the same time, the margin story at Microsoft has inflected - we now forecast improving gross and operating margins over the next three years," he said.
With $17.5 billion in annual revenue, Amazon Cloud is far and above the highest-grossing public cloud business in the market. But Morgan Stanley believes that Microsoft's greater enterprise business offerings will give it a leg up in the long run as more companies move their workloads from on-premise servers and onto the cloud.
Microsoft doesn't disclose specifics on its public cloud offering, Azure, but the company did share that Azure revenue grew by 98% in calendar year 2017. Its entire cloud division, which includes Azure and cloud-hosted products like Office 365, was valued at $5.3 billion for the quarter that ended Dec. 31, 2017.