The relentless, multi-year rally in Microsoft's (NASDAQ:) stock continues to defy even the most optimistic forecasters.
In 2021 alone, the software giant gained nearly 55%, almost double the expansion of its benchmark index. MSFT also made history when it reached a $2 trillion market cap last summer, becoming the second U.S. publicly traded company to reach that milestone after Apple (NASDAQ:). the main factor behind the share's 441% rise in the past five years – a period in which its CEO, Satya Nadella, expanded into new areas, primarily focused on the cloud computing arena. , has more room to turn, many analysts say, making Microsoft one of the top picks from the elite group of mega-cap technology stocks by 2022. One of the main factors behind this optimism is the industry-wide transition to cloud computing that has only just begun.
Microsoft's Azure unit, which rents computing power to startups and larger companies, is in a position to thrive in the coming years. According to Wedbush Securities, global spending on cloud services will approach $1 trillion over the next decade as companies spend more on cloud computing. In a recent report in Bloomberg, Microsoft has a unique advantage that allows it to attract more customers who want to move to the cloud. Unlike its cloud competitors, MSFT sells traditional PC software and operating systems and can offer better integration with its products, the report said. largest share of technology budgets in the next three years—especially other tech companies, including Amazon (NASDAQ:).
These benefits should help Microsoft continue to generate massive amounts of revenue and cash for years to come.
Source: InvestingPro
Based on InvestingPro analytics, Microsoft is expected to realize a 25% increase in EPS growth this quarter, a trend that is likely to continue into 2022.
As Well, among 45 analysts surveyed by Investing.com, an overwhelming percentage of those surveyed rated MSFT as "outperforming." t was $386.52, a 9.57% gain from Friday's closing price of $336.32, with additional targets ranging from a low of $299.93 to a high of $412.07 . Credit Suisse, while setting a price target of $400 per share for the stock, said in a recent note that a big driver for Microsoft going forward will be Azure, which is closing the gap between MSFT and AMZN's Amazon Web Services, the cloud business leader with the largest market share will continue to shrink. His note added:
"For at least the next five years, we predict that Microsoft will deliver (1) revenue growth in the mid-to-high teens … (even with accelerating investment) and ongoing share buybacks. We believe these levels continued growth and profitability are still not properly reflected in consensus estimates or valuations.”
During his tenure, Nadella also diversified Microsoft's revenue stream by spending more than $45 billion acquiring companies, including the business social network LinkedIn, video game developers Mojang and Zenimax, and the code storage service GitHub.
The pandemic has also further accelerated the growth of MSFT. Millions of employees and students sitting at home use the company's Teams meeting software to stay connected and connected. Large enterprise customers also accelerated their move to the cloud, while younger customers bought Xbox gaming subscriptions.
“Even after we become one of the largest companies in the world…we still see a bright future for Microsoft, driven by continued growth prospects in huge categories of IT spend…the ability to monetize further from our strong positioning in multiple end markets…and a financial profile that continues to demonstrate sustainable growth and margin expansion.”
Bottom Line
Microsoft continues to expand its market share into new areas of the digital economy, such as cloud computing and artificial intelligence, while maintaining its leadership position with legacy software products such as Windows and Office .
This sustainable advantage will help the company achieve sustained double-digit growth in revenue, earnings per share and free cash flow, making it one of the safest bets in the group of mega-cap stocks in 2022 .
