Shares of old-guard tech titan Microsoft Corp. (MSFT) closed up about 0.6% at $92.33 on Thursday following a bullish note from a team of analysts on the Street who expect the $713 billion IT provider to reach a $1 trillion market capitalization by as early as 2019. (See also: Salesforce CEO Dismisses Microsoft as a Rival.)
Analysts at Canaccord Genuity Group Inc. applauded the over four-decades-old Redmond, Wash.-based tech giant on its transformation plan in which the firm is focused on building out and investing in high-growth markets such as cloud computing and eSports.
Canaccord's Richard Davis expects the newer parts of Microsoft's business, such as its Office 365 product suite, to comprise a larger percentage of the company's total revenue as time goes on. He also sees upside in the firm's growing CRM/marketing suite that rivals Salesforce.com Inc. (CRM), as well as strong demand tailwinds for the Xbox franchise and its public cloud platform Azure, which rivals Alphabet Inc.'s (GOOGL) Google Cloud Platform and Amazon.com Inc.'s (AMZN) Amazon Web Services (AWS).
Appreciating at 10% to 20% Per Annum
“If you believe, as we do, that it is reasonable to expect MSFT to appreciate between 10-20% annually for the next five years, you get to the Big T as early as calendar Q4 2019, or more like sometime in early 2020,” wrote Davis.
The Canaccord analyst suggested that even if legacy businesses such as traditional Windows software experience a 10% decline per year, "the combined revenue from the aforementioned growth segments will simply become a bigger percentage of total revenue sooner." Davis noted that despite heightened spend on growing segments such as Office 365 and its Dynamics platform, Microsoft's increased scale will "eventually overwhelm spend, and that pushes margins higher, sometimes in a discontinuously positive direction." As a result, he foresees investors rewarding Microsoft's profitability, yet warns that the stock could experience a short-term pullback given a 20% or so surge since October.
In 2018, the Street is forecasting Microsoft to grow sales by 10% to reach $106.4 billion, according to a recent report by Thomson Reuters, making it the fourth-largest U.S. tech company by annual revenue with the fifth-fastest growth rate among its peers. (See also: Top 10 Tech Firms to Exceed $1T in 2018 Sales.)