Credit Suisse raises Microsoft price forecast, makes stock a top pick into earnings

Published Mon, Jul 17 20173:09 PM EDT

Credit Suisse raised its Microsoft price forecast and call the stock a top pick into earnings because of expectations its cloud business will grow faster than Wall Street currently expects. Results from a recent Credit Suisse survey show that Microsoft's cloud platform Azure is enjoying more popularity over its competitors. "Our Outperform thesis on MSFT shares is centered on what we view as significant earnings power potential over the next few years," wrote Credit Suisse analyst Michael Nemeroff on Monday. "[Earnings potential] could be unlocked from (1) strong commercial cloud growth and (2) higher cloud gross margins due to economies of scale." Nemeroff and his team raised the new 12-month price target to $84 from $80. The new target represents 15 percent upside from Friday's close. Credit Suisse's latest software survey indicated that Microsoft enjoyed the largest improvement among all cloud vendors, as 40 percent of all respondents indicated that Azure was their preferred cloud platform. "We continue to expect Azure to gain market share due to its competitive differentiators," continued the analyst. "This combined with very recent positive commentary re: Azure from several third-party vendors gives us conviction that MSFT could exceed our F4Q17/FY18 Azure revenue estimates of $1.3B." Commercial cloud storage continues to dominate technology investment, as titans Google, Facebook, and Amazon all develop and build their data centers across the globe. Microsoft is no exception. "Our recent mid-year software survey suggests that cloud momentum, both public and private, will remain strong as enterprises look to spend as much as 23% of all IT investment dollars on cloud over the next three years," said Nemeroff. Microsoft's iconic Office software suite is transitioning nicely to the cloud, the analyst said. Thirty-eight percent of survey respondents have already adopted Office 365 (Microsoft's latest Office update), while another 36 percent still plan to upgrade within 24 months. "Our proprietary bottom-up revenue model also suggests that Office 365 Commercial has been one of the leading drivers of gross profit dollar growth over the past few years," concluded the report. Microsoft is set to release its earnings report on Thursday.

Microsoft CEO Satya Nadella delivers a keynote address during the 2014 Microsoft Build developer conference on April 2, 2014 in San Francisco, California.

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Credit Suisse raised its Microsoft price forecast and call the stock a top pick into earnings because of expectations its cloud business will grow faster than Wall Street currently expects.

Results from a recent Credit Suisse survey show that Microsoft's cloud platform Azure is enjoying more popularity over its competitors.

"Our Outperform thesis on MSFT shares is centered on what we view as significant earnings power potential over the next few years," wrote Credit Suisse analyst Michael Nemeroff on Monday. "[Earnings potential] could be unlocked from (1) strong commercial cloud growth and (2) higher cloud gross margins due to economies of scale."