Microsoft could jump 38% as cloud business carves a path to 'sustained' double-digit revenue growth, Goldman Sachs Says

• Microsoft was added to Goldman Sachs analysts' "Conviction List" on Monday.
• The analysts believe the cloud business is leading to "sustained" revenue growth and margin expansion.
• Goldman's $315 price target implies a potential 38% jump from Wednesday's closing price.

Microsoft stock could jump 38% from Monday's closing price as the company's cloud business continues to carve a path to "sustained double-digit" revenue growth, according to Goldman Sachs.

Goldman analysts led by Kash Rangan added Microsoft, Salesforce, and Coupa to their "Conviction List" on Monday. The analysts said Microsoft is set to "capitalize on digital transformation spending" even as the pandemic fades.

In particular, Goldman highlighted Microsoft's diverse cloud capabilities arguing that the company is "well-positioned to capitalize on a number of long-term secular trends, including public cloud and SaaS adoption, digital transformation, AI/ML, BI/analytics, and DevOps (amongst others)."

The analysts' $315 price target for the Redmond-based tech giant implies a 38% potential price jump from Monday's closing price of $227.39. Goldman initiated coverage on Microsoft at a "buy" rating with a $285 price target back in January.

In Monday's report, the analysts were pleased with the growing market share of Microsoft's Azure cloud business. According to Goldman's Digital Transformation survey, Microsoft "exhibited the greatest net strength" in digital transformation technology due to its cloud technology.

85% of Chief Information Officers expect Microsoft to gain market share within their IT departments going forward compared to just 7% expecting the company to lose market share.

Additionally, the cloud business's high margins mean Microsoft could see "sustainable" margin expansion going forward. Commercial cloud gross margins were roughly 71% in Microsoft's most recent earnings report.

Analysts also mentioned the potential for Office 365 to "double its installed base" to 500 million users and noted Microsoft's "breadth of offerings and large installed base position the company to expand its share of wallet within customers' IT budgets."

Goldman analysts are forecasting revenues and EPS to be well ahead of consensus estimates for the next three years. The analysts believe revenue and earnings will grow at a 14% and 21% compound annual growth rate respectively during the period. They also expect Microsoft will turn in $164 billion in revenue and EPS of $7.41 in 2021.

Goldman analysts' positivity adds to a bevy of support for Microsoft. The company boasts 45 "buy" ratings, six "neutral" ratings, and zero "sell" ratings from analysts.