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Microsoft Rides Its Cloud Business to a $2 Trillion Market Cap. It’s Not Done Yet. – Barron’s

Illustration by Elias Stein

Microsoft is now the second company to boast a $2 trillion market capitalization, following Apple, which breached that level last August. And Microsoft may go higher yet.

Wedbush analyst Daniel Ives this past week reiterated his Outperform rating on the software giant, lifting his price target on the shares to $325 from $310. That represents a potential gain of more than 20%, which would take the company’s market value to $2.4 trillion. His enthusiasm for the stock is driven by Microsoft’s cloud business, Azure.

On Wednesday, Microsoft shares inched up 0.1% to $265.79, a new high, boosting its market cap to $2.004 trillion. (Apple is at roughly $2.2 trillion.) Ives notes that June channel checks find improving demand for Azure. “The Azure cloud growth story is hitting its next gear of growth,” he writes. “We are seeing deal sizes continue to increase markedly as enterprisewide digital transformation shifts are accelerating with CIOs all focused on readying their respective enterprises for a cloud-driven architecture.”

Wall Street concerns that cloud growth will moderate coming out of the pandemic run counter to the deal activity Microsoft is seeing, Ives writes, noting that June-quarter results appear to be “robust.” He thinks Microsoft is still only about 35% into the conversion of its installed application base into the cloud.

Ives sees continuing global “digital transformation” as a $1 trillion opportunity, and says Microsoft will disproportionately benefit. “Microsoft remains our favorite large-cap cloud play and we believe the stock will start to move higher over the coming quarters…,” he writes. “The growth story at Microsoft is not slowing down.”

Next Week

Monday 6/28

Novo Nordisk holds a conference call hosted by its chief financial officer, Karsten Munk Knudsen, to discuss its research and development outlook. The investor meeting will be held in conjunction with the American Diabetes Association’s 2021 Congress, which runs virtually from June 25 to June 29.

The Federal Reserve Bank of Dallas releases its Texas Manufacturing Outlook Survey for June. Consensus estimate is for a 32.5 reading, slightly lower than May’s 34.9. The index is near a three-year peak of 37.3, reached in April, indicating strength in the region’s manufacturing sector.

Tuesday 6/29

Principal Financial Group and Sempra Energy hold their 2021 investor days.

United Airlines Holdings hosts a conference call to update investors on the company’s growth strategy.

The Conference Board releases its Consumer Confidence Index for June. Expectations are for a 117.8 reading, roughly even with the May data. The index has rebounded strongly this year but remains well below prepandemic levels.

S&P CoreLogic releases its Case-Shiller National Home Price index for April. Economists forecast a 14.2% year-over-year increase, after a 13.2% gain in March, which was the largest jump since December 2005.

Wednesday 6/30

ADP releases its National Employment Report for June. Economists forecast a 450,0000 gain in private-sector employment, after adding 978,000 jobs in May. The May rise was the largest since June of last year.

Constellation Brands, General Mills, and Micron Technology report quarterly results.

ConocoPhillips hosts a market update, featuring the company’s CEO, Ryan Lance.

EQT hosts a conference call to discuss its 2020 ESG performance as well as its ESG strategy going forward.

The Institute for Supply Management releases its Chicago Purchasing Managers’ Index for June. The consensus call is for a 70 reading, lower than May’s 75.2, which was a 47-year high for the index.

The National Association of Realtors reports its Pending Home Sales Index for May. Sales are projected to drop 1% month over month, after falling 4.4% in April. Supply constraints, especially at the lower end of the housing market, have been cited by the NAR for slowing sales.

Thursday 7/1

McCormick and Walgreens Boots Alliance hold conference calls to discuss earnings.

Friday 7/2

The Bureau of Labor Statistics releases the jobs report for June. Expectations are for a rise of 625,000 in nonfarm payrolls, after a 559,000 gain in May. The unemployment rate is seen continuing to edge lower to 5.6% from 5.8%

Write to Eric Savitz at [email protected]