Software giant Microsoft Corporation (NASDAQ: MSFT) is scheduled to release its fiscal year 2020 second-quarter results Wednesday after the market close.
One analyst at Wedbush is confident of the company outperforming, riding on its cloud strength.
Wedbush analyst Daniel Ives maintained an Outperform rating and $195 price target on Microsoft shares.
The Microsoft Thesis
Microsoft's cloud momentum is still in its early days of playing out within its massive installed base, and the Office 365 transition for both consumer/enterprise is providing growth tailwinds over the next 12 to 18 months, Ives said in a note.
Additionally, newer integrated product initiatives around consumers and cloud services are still playing out within the company's ubiquitous installed base worldwide, the analyst added.
"This combination of dynamics should enable Nadella to further transform MSFT into a cloud behemoth over the coming years and translate to further earnings and multiple expansion looking ahead," the analyst wrote in the note.
Although conceding that Amazon.com, Inc.'s (NASDAQ: AMZN) AWS will pose a potent competitive threat, Ives said he believes Microsoft with its partners and dedicated sales force has a major opportunity to convert enterprises to the Azure/cloud platform.
The analyst expects Microsoft's shares to remain strong, as investors appreciate how leveraged the company is to the transformational cloud trend set to play out in the coming years in the ‘cloud arms race.'
Q2 Expectations For MSFT
Wedbush expects Microsoft to report another solid beat across the board, with field checking suggesting a 3-4% beat by its commercial cloud business.
The firm noted that the December quarter saw strong pipeline activity around larger and more strategic enterprise cloud deals, both domestically and in Europe.
The second-quarter print is likely to reflect the accelerating secular shift of enterprises to Microsoft's cloud platform and strong performance by Azure.
Microsoft shares closed down 1.67% to $162.28.