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Morgan Stanley: Microsoft Has Course Charted For $1-Trillion Valuation

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Morgan Stanley: Microsoft Has Course Charted For $1-Trillion Valuation
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Top tech blue chips, including Apple Inc. (NASDAQ: AAPL), Amazon.com, Inc. (NASDAQ: AMZN), Alphabet Inc Class A (NASDAQ: GOOGL) (NASDAQ: GOOG), are locked in a fierce race to becoming the first $1-trillion company in market capitalization.

Although not a leading contender, Microsoft Corporation (NASDAQ: MSFT) has the opportunity to hit the milestone, according to Morgan Stanley. 

The Analyst

Morgan Stanley analyst Keith Weiss has an Overweight rating on the shares of Microsoft and increased the price target from $110 to $130. The stock is Morgan Stanley's top pick, the analyst said. 

The Thesis

Microsoft's strong positioning for ramping public cloud adoption, large distribution channels, installed customer base and improving margins support a path toward a $1-trillion market cap and $50 billion in EBIT, Weiss said in a Monday note.

The company has differentiated its public cloud offering from competitors like Google and Amazon in the areas of core infrastructure services, "compelling" Platform-as-a-Service capabilities and the application layer, the analyst said.

Weiss said he expects the combination of the public cloud assets with pre-existing enterprise assets to drive share gains over the next three years. Morgan Stanley projects that Microsoft will maintain a dominant position in the public cloud market, which is expected to more than double in size to over $250 billion.

Microsoft's margins are past the inflection point, and both gross and operating margins should improve over the next 72 months, Weiss said. 

"Combining a durable top line growth story with improving margins drives a 17-percent CAGR for Microsoft's EBIT thru calendar 2020 to over $50 billion." 

The Price Action

Microsoft shares were up about 34 percent over the past year through Friday.

In pre-market trading, the shares were adding 3.98 percent to $90.65.

Related Links: 

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Latest Ratings for MSFT

DateFirmActionFromTo
Oct 2018CitigroupMaintainsNeutralNeutral
Oct 2018NomuraMaintainsBuyBuy
Oct 2018KeyBancMaintainsOverweightOverweight

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