With 12% returns in 2016, which topped the 9.55% rise in the S&P 500 (SPX) index, Microsoft Corporation (MSFT) was without a doubt one of 2016's best performers. The stock closed Friday at $62.14, ending the year with six-month gains of more than 21%.

Under CEO Satya Nedalla, who successfully close the $26.2 billion acquisition of LinkedIn, Microsoft's cloud-first strategy was an important step in changing the company's slow-moving approach under former CEO Steve Ballmer to a more nimbler tech juggernaut. Accordingly, Microsoft stock in 2016 broke out of its decade-long tight trading range and is now priced near tech-bubble highs.

Part of the reason for the company's newfound success was due to the fact that Microsoft no longer relies solely on Windows and Office for cash flow. Because of this, in 2016 Wall Street made a conscious and obvious decision to overlook the fact that Microsoft is still non-factor in mobile. And much of this optimism or benefit of the doubt is due to the company's cloud prowess, which places Microsoft to become second only to Amazon.com, Inc.'s (AMZN) dominant AWS.

That, however, also means that the pressure for Microsoft's Azure cloud platform to take more market share in 2017 heightens. Goldman analyst Heather Bellini is not worried about the pressure on the cloud. While citing strong growth opportunities in its Azure cloud platform, Bellini raised her price target the stock to $68 from $60.

"We believe the shares are poised to more consistently outperform in the year ahead on the back of sustained traction in its cloud offerings," Bellini said in a research note to investors. "We estimate that Microsoft Azure will contribute 94 cents, or 19% of Microsoft's total 2020 non-GAAP​ EPS of $4.83, and potentially $19 per share (23% of total estimated value)."

From a valuation perspective, Microsoft shares aren't cheap. The stock is priced at a forward P/E of 21 for 2017, which is three points above the S&P 500 index. But the potential value creation from LinkedIn, combined with its cloud momentum, Microsoft shares should reach $76 in the next twelve months, delivering 22% returns. Add in its 2.5% dividend yield and that's excellent value.

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