MORGAN STANLEY: Microsoft’s huge growth has nothing to do with its fight against Apple

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Morgan Stanley

Microsoft has been battling Apple for decades in a fight to be the computer in your home or on your lap, but they have been quietly taking over an entirely different sector.

Recently, Microsoft has been tackling the commercial cloud business, and it could pay off big time, according to a recent note to investors from Morgan Stanley.

“We estimate the Commercial Cloud annualized revenue run rate increases to $17 billion in 4Q17, or 85% of Microsoft’s FY18 $20 billion target,” Keith Weiss, an analyst at Morgan Stanley wrote.

Weiss is talking about Microsoft’s growth in the business of providing servers and cloud solutions to large companies. The company’s commercial cloud solutions have been growing dramatically in recent quarters.

Azure, Microsoft’s cloud computing platform, has seen 90% revenue growth compared to last year, while the company’s cloud-based Office software has seen 40% growth, according to Weiss.

Amazon has been using a similar strategy to build out its Web Services offering. When the service went down earlier this year, a lot of the internet went dark, showing just how widely adopted Amazon’s service is. Microsoft is trying to compete for those same customers.

Microsoft had to overhaul its confusing Azure platform in 2011, but has seen rapid adoption since. It’s Azure Stack product was recently released, allowing customers to implement the Azure system locally. Investors have called this Microsoft’s secret weapon in its fight against Amazon.

Microsoft certainly hasn’t slowed down its personal PC business, though. Its recent slate of top-of-the-line hardware products shows that. But the business is not as strong as it used to be, and the renewed focus on the commercial cloud is helping the company’s bottom line, according to Weiss.

Weiss expects double-digit earnings growth over the next couple of years. From 2012-2015, the company has a compound annual eps growth rate of -1%. Weiss thinks this will jump to 11% from 2016-2019 based on growth in the cloud.

Weiss rates Microsoft a buy with a price target of $80.

Shares of Microsoft are up 14.39% this year.

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Markets Insider