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Alex Kimani

Alex Kimani

Writer, Divergente Research LLC

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Divergente Research LLC and Safehaven.com. 

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Could This Software Giant Beat Apple To $1 Trillion?

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The trillion-dollar race is on, and a handful of tech's most valuable players are jostling to claim those bragging rights.

At a market cap of $925 billion, Apple Inc. (NASDAQ:AAPL) is closer to the tape than everybody else, and $150 billion more than second-placed Amazon Inc. (NASDAQ:AMZN), while Google's parent company, Alphabet Inc. (NASDAQ:GOOG) closes out the top three.

But in the middle of the race, Microsoft is re-inventing itself …

Outside the rarefied space occupied by Apple, it's a really tight race. Fourth-placed Microsoft Corp.(NASDAQ:MSFT) is just $24 billion shy of Amazon's market cap, and there's a solid chance that the software giant will manage a podium finish.

(Click to enlarge)

Source: MarketWatch

After all, Microsoft is not your archetypical sexy FANG stock, but seems to be having little trouble keeping up with the pacesetters. Microsoft is an old tech company that has been undergoing a radical makeover that has surprised even the most ardent of critics--and helped MSFT stock rack up impressive gains of 45 percent over the past 12 months.

For decades, Microsoft has been the de facto leader in enterprise and office software, earning most of its profits from the ubiquitous Windows and MS Office. The rise of simpler form factors such as mobile devices and tablets, however, led to a sharp decline in PC shipments over the past decade and took a big hit on Microsoft's gravy train. Related: U.S.-China Trade War “On Hold”

But Microsoft has gradually managed to re-invent itself under the tutelage of CEO Satya Nadella at the helm for four years now.

The company's foray into new growth areas including cloud computing, virtual reality and AI has been surprisingly successful and helped redefine the company despite its initial failure to make a mark in the mobile arena.

The Microsoft of today is largely unrecognizable from a decade ago. From a company that mostly sold on-premise Windows and MS Office licenses, Microsoft has officially become the world's largest cloud company.

Three years ago, the company set an ambitious target to achieve cloud revenues of $20 billion in 2018—and it crossed that milestone three quarters early.

Wall Street Weighs in on Microsoft

Microsoft's cloud suite consists of Azure, Dynamics 365 and Office 365. The triumvirate posted impressive double-digit during the last quarter, with Azure posting the 10th consecutive quarter of 90-percent-plus growth.

Part of Microsoft's cloud success stems from its vendor-agnostic approach on Azure that lets other clouds connect seamlessly with its own and  build hybrid clouds. Microsoft has fashioned itself as 'the hybrid cloud provider of choice.'

From being a company that was frequently derided for missing out on the mobile party, Microsoft has become a darling on Wall Street, with analysts falling over themselves to dish out upgrades.

One such bullish punter is Morgan Stanley who sees Microsoft zooming up to a valuation of a trillion dollars over the next 12 months.

MS' bullish prediction calls for MSFT stock to rally 33 percent over the period. According to the analyst, the main drivers will be the usual cloud suspects as well as data center share gains and an improving ROE. Microsoft currently has a total of 27 Buy, four Hold and just one Sell rating on Wall Street with a median price target of $114 (17-percent upside).

That might not be enough gas to get it to the magical trillion-dollar mark, but will bring it awfully close.

By Alex Kimani for Safehaven.com

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