Microsoft Successfully Pivots To Cloud, Becomes One Of The Largest And Fastest Platforms

Commercial Cloud

Bracelin noted that Microsoft's commercial cloud growth was "surprisingly strong" and topped a $14 billion run-rate, which now represents 13 percent of sales, up from just 5 percent two years ago.

The analyst added that the company's momentum in the cloud continues with notable strength in the commercial Office 365 cloud applications, which rose 47 percent year-over-year. In addition, growth in Azure remained "robust" at 95 percent year-over-year (excluding foreign exchange).

Bracelin continued that Microsoft's report reinforces a bullish stance that management "successfully pivoted" to become of the largest and fastest-growing enter price-class cloud platforms.

"This year, Microsoft stands to benefit from multiple upside revenue drivers and product catalysts that could re-accelerate growth and improve margins for one of the largest cloud and software franchises globally," the analyst concluded.

Analyst's Bottom Line

Finally, the analyst is recommending investors own Microsoft's stock this year and shares could gain another 9 percent this year under a base-case scenario even though the stock is trading near a new all-time high. The analyst is factoring in:

1. Organic revenue growth of 4 to 5 percent year-over-year.
2. Cloud mix continues to increase to 16 percent of sales.
3. Free cash flow approaches $4.00 in calendar 2017.
4. Buybacks and a 2.7 percent dividend yield continues.

At last check, shares of Microsoft were up 2.16 percent at $65.66.