Microsoft will leap another 20% as cloud-computing strength drives strong earnings, Wedbush says

• Wedbush lifted its price target for Microsoft to $270 from $260 on Sunday, implying a 19.5% climb from Friday's close.
• Analyst Dan Ives expects the company's Azure platform to drive a strong earnings beat when Microsoft reports quarterly figures on Tuesday.
• A permanent shift to telework will bolster the cloud product's growth, and the trend is still "in early days of playing out," Ives said.
• Watch Microsoft trade live here.

Microsoft's continued dominance in the cloud-computing sector will bolster its fourth-quarter figures and drive shares higher throughout 2021, Wedbush analyst Dan Ives said Sunday.

The firm lifted its price target on Microsoft stock to $270 from $260, reflecting the expectation that shares will climb 19.5% from Friday's close over the next 12 months.

All eyes will be on Microsoft's Azure business when the company reports earnings on Tuesday afternoon. The cloud sector has been a major boon for the company in recent years, and any sign of slowdown could place outsized downward pressure on shares. Momentum in the segment's growth has tapered off slightly, Wedbush expects a permanent shift to semi-remote workforces to buoy Azure over the next year.

"This current work-from-home environment is further catalyzing more enterprises to make the strategic cloud shift with Microsoft across the board with Azure growth remaining brisk," Ives said in a note to clients.

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Wedbush holds an "outperform" rating on Microsoft shares. The firm also holds a bull-case price target of $300, roughly 33% above the company's Friday closing level.

Ives estimates that Microsoft has only met 35% of the market for its cloud product and that permanent telework will accelerate other companies' deployments of cloud-computing deals. Roughly 90% of upcoming cloud deployments have already been approved by company executives, the analyst added, leaving Microsoft to rapidly boost its market share in the coming months.

Azure growth is also among the few tech trends set to be relatively insulated from economic reopening. Vaccine distributions will gradually allow more workers to return to offices, but the cloud shift will continue as companies look to join the new normal of cloud-based enterprise software, Wedbush said. Last month's SolarWinds cyberattack only further lifts demand for tested cybersecurity offerings, the firm added.

Ives expects the tech giant's earnings to trounce estimates across the board and boost its forward guidance. Azure's expansion is "still in the early days of playing out," he said, adding its lead over Amazon's AWS will be crucial to capitalizing on the secular shift.

Microsoft will join several other mega-caps in reporting earnings this week. Apple is also scheduled to post its fiscal first-quarter figures on Tuesday. Facebook and Tesla will report on Wednesday, followed by Amazon's earnings release on Thursday.

Microsoft closed at $225.95 per share on Friday, up about 2% year-to-date.

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