Microsoft Stock Predictions: Cloud Computing And Software Subscription Are Still Microsoft’s Growth Drivers

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First

Microsoft Stock Predictions


  • The market did not rally behind Microsoft’s impressive FY 2017 Q4 earnings report.
  • It is now clear to me that Microsoft will never have the same level of appeal of Google, Tesla, Apple, or Amazon.
  • Nevertheless, investors looking for technology stocks with strong growth potential should still add MSFT to their portfolios.
  • Microsoft’s strong lead in cloud computing and Software-as-a-Service will help it grow faster than its rivals like IBM and Oracle.
  • I Know First still gave MSFT positive near-term and long-term algorithmic forecasts.

Even without the one-time $0.23 EPS boost from the $1.8 billion tax item applied over its phone division’s losses, Microsoft’s FY 2017 Q4 earnings and revenue numbers were still impressive. Q4 EPS would still be $0.75 and Microsoft’s revenue of $24.7 billion would still be 9.1% higher than same period last year. Sad but true, a quarterly performance like this would have boosted other tickers like AMD (AMD), Apple, (AAPL), and Tesla (TSLA).

Microsoft clearly doesn’t have the same appeal of its more popular peers. Estimize’s Q4 prediction (average) was $0.74 EPS and $24.215 billion revenue. Wall Street’s mean estimates were $0.71 and $24.188 billion. Microsoft therefore still beat Estimize and Wall Street’s estimates. In other words, Microsoft just delivered its eight consecutive quarter of beating Wall Street’s EPS and revenue estimates.

Microsoft stock predictions

(Source: Estimize)

Fortunately for bargain hunters, Microsoft’s stock did not shoot up last Friday. In fact, instead of rising after an outstanding earnings report, MSFT’s price dipped the day after ER. This should give growth-minded investors to exploit a decent entry point on Microsoft. The strong showing of Azure and software subscription/services convinced me that Microsoft has a lot more upside potential.

Based on the Q4 chart below, Azure, Office 365 commercial, and Dynamics 365 are Microsoft’s clear growth drivers. They are all growing fast enough to offset any weakness in gaming, advertising, and enterprise services.

Microsoft stock predictions

(Source: Microsoft)

Microsoft’s cloud infrastructure business is nowhere to go but up. In terms of workload, Microsoft’s Azure now touts 29.4% market share. AWS still has 41.5% but it will eventually lose more ground to Microsoft’s Azure.

Microsoft stock predictions

Nadella’s Cloud First Strategy Is Working

Azure will help Microsoft unseat Amazon (AMZN) Web Services as king of cloud computing infastructure. While Amazon is still the clear leader in public cloud, Azure is growing notably faster than AWS. Azure and AWS are now the clear leading rivals in Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS). Microsoft is headed in the right direction because IaaS and PaaS will generate the fastest revenue growth in cloud & data center.

Microsoft stock predictions

IaaS and PaaS is expected to enjoy a CAGR (Compound Annual Growth Rate) of 29%. Microsoft doesn’t break down Azure numbers but it is under the Intelligent Cloud segment. Azure’s 97% Year-over-Year growth  helped Intelligent Cloud post $7.4 billion in Q4 2017 revenue. If we guesstimate that 50% of which came from Azure, Microsoft’s equalizer to Amazon Web Services is now generating  $3.7 billion per quarter. We could guesstimate that Azure is now capable of contributing annual revenue of $12 billion or more.

Azure was launched only seven years ago. Amazon launched AWS in 2006. Microsoft’s willingness to engage Amazon in a pricing war tells me that Azure will beat AWS within the next two or three years. Let’s face it, Microsoft can afford to match whatever AWS can offer to its customer. Microsoft has $126 billion of cash reserves, 97% of which is stashed abroad.

Microsoft stock predictions

(Source: Bloomberg)

Amazon’s cash reserve is only $26 billion. I am highly confident that Amazon will dare not sell AWS subscriptions at less-than-cost when Microsoft has more money to outlast any prolonged pricing war in IaaS and PaaS. There will come a time that Amazon’s lofty valuation bubble will eventually get pricked/busted by Microsoft’s relentless drive to dominate cloud computing and Software-as-a-Service.

I’m still long AMZN but a good pair trade idea right now is to go long MSFT and short AMZN. MSFT is a dirt-cheap bargain compared to AMZN right now.

Microsoft stock predictions


The huge cash reserve of Microsoft is also a compelling reason to go long MSFT right now. Nadella has a lot of idle money to quickly buy any company which could help it compete better in cloud computing and Software-as-a-Service (SaaS). Azure will ultimately become the king of IaaS and PaaS.

This is just like how Office 365 eventually defeated Google’s (GOOG) G Suite or Google Apps For Work suite for cloud-based software applications.

Microsoft’s near term and long-term algorithmic forecasts from I Know First are all positive. This should convince you further to go long MSFT.

Microsoft stock predictions

Past I Know First Forecast Success with MSFT

I Know First has made accurate predictions on MSFT in the past, such as its bullish article published on August 17th, 2016. In the article, it outlined that come 2017, Microsoft will likely focus on selling its long-rumored high-end Surface Windows phones. Xiaomi and Acer could then focus on mid-range and entry-level Windows handsets. Selling Windows 10 phones will ease the pressure on Xiaomi’s declining Android phone business. During the one-year period starting on August 17th, 2016 until now (July 23rd, 2017), MSFT shares have increased by 28.46% in line with the I Know First algorithm’s forecast. See chart below.

Microsoft stock predictions

(Source: Google Finance: MSFT)

This bullish forecast for MSFT was sent to I Know First subscribers on August 17th, 2016. To subscribe today click here.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

Microsoft stock predictions

Microsoft stock predictions