* Reports Q2, 2020 results on Wednesday, January 29, after market closure
* Income expectation: $ 35.67 billion
* EPS expectation: $ 1.32
When Microsoft Corporation (NASDAQ 🙂 releases its final quarter today, it will give investors confidence that one of the dominant bull market bets will remain intact.
After a massive transformation under its Chief Satya Nadella, Microsoft has become one of the most powerful players in the fast-growing cloud computing market, with the second largest market share of the segment, with only Amazon.com (NASDAQ 🙂 ahead .
More than five years ago, Nadella began to diversify Microsoft's revenue from its traditional growth engines – Windows and Office – by investing heavily in data centers and other infrastructure to help business customers run applications and store their data.
The growth in this market continues unabated for Microsoft, stimulating the operating result. For the quarter ended December 31, analysts expect analysts to expect Microsoft to achieve revenue growth of around 10%, while earnings will increase by 20% to $ 1.32 per share.
Sales of the company's Azure cloud services increased by 59% in the previous period, while sales of subscription-based Office 365 for business customers, Microsoft's other major cloud business, increased by 25%. Microsoft's Intelligent Cloud segment now covers more than 30% of the company's total revenue.
We believe that this power will be shown again if the company continues to win both large and small customers. In October, the Pentagon Microsoft awarded the Joint Enterprise Defense Infrastructure or JEDI contract that could be worth up to $ 10 billion over the next decade.
Major cloud deals keep coming
Microsoft's victory for this major government work shows that how quickly the Washington-based company in Redmond is gaining market share and poses a serious threat to Amazon's dominance.
The latest deal comes after many major brands have signed agreements to use Microsoft & # 39; s Azure cloud software, including grocery store Kroger Company (NYSE :), AT&T Inc. (NYSE :), Walgreens Boots Alliance ( NASDAQ 🙂 and oil giant Exxon Mobil (NYSE :).
These contracts provided most of the fuel for the powerful rally in Microsoft shares in the past year, which set it apart from other older major technical companies, such as International Business Machines (NYSE :).
Microsoft shares – closed at $ 165.46 yesterday – have risen by more than 50% in the past year. This jump has pushed the company's market value to $ 1.26 trillion, making it one of the most valuable companies in the world.
Microsoft's monthly price card
The big question for investors now is how far can this rally go? With a profit of almost 31 times, Microsoft shares are sold at a premium compared to many top technology stocks. They also carry the highest multiple that the stock has ordered in more than 15 years.
In our opinion, the factors that supported Microsoft shares in the past 12 months still play a major role. The cloud computing market is expected to grow from $ 285 billion in 2017 to $ 411 billion in 2020. Only that segment is large enough to boost the company's revenue growth for the next three to four years, according to Microsoft managers.
In combination with cloud momentum, the technology giant also benefits from strong PC sales. Sales of personal computers in the fourth quarter were the best the industry has seen in years, according to data released last week by market research firms IDC and Gartner.
Bottom Line
While investors are worried about the global economic outlook and the lifetime of this bull cycle, Microsoft & # 39; s fundamentals make it a safe bet in the technical space. We think Microsoft's earnings momentum will continue as it expands its market share in the cloud computing segment, while maintaining its leading position in older software products such as Windows and Office.
This sustainable benefit will help the company achieve sustainable, double digit growth in revenue, earnings per share and free cash flow, making it a reliable technical stock to own in the long term.
