3 Reasons Microsoft's Stock Is Now Buy, With 16% Upside

“Azure is the #2 market share vendor in the cloud space, and has grown 100 percent or more yoy eight of the last ten quarters, and in fact growth accelerated in Q3 16," said Goldman Sachs’ Heather Bellini.

Bellini upgraded the rating on Microsoft Corporation MSFT from Neutral to Buy, while raising the price target from $60 to $68.

Bellini explained that there were three reasons for the upgrade:

1) Accelerating growth in gross profit dollars driven by its cloud transition.

2) An inflection in incremental operating margins as cloud profitability ramps and operating expense growth remains muted.

3) Upside potential to consensus out year EPS forecasts.

The new price target represents upside potential of 16 percent for the stock, as compared to 11 percent upside for the rest of Goldman Sachs’ coverage.

The tech space saw a selloff following the U.S. presidential election, although the pullback in Microsoft appears to have been an overreaction.

Azure To Drive Growth

“With a large Microsoft customer base and strong C-level relationships, we believe Azure can continue to grow revenue and improve margins over time,” Bellini mentioned.

The analyst noted that this perception was supported by channel partners, who recently commented that they had been seeing robust uptake of Azure by enterprise customers, especially hybrid cloud.

According to Mr. Guthrie, executive vice president of Microsoft’s Cloud and Enterprise Group, the reputation as a “trusted provider” of hybrid solutions “resonates” with vendors who are attempting to attract their own enterprise customers.