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How far can Microsoft’s share price climb?

Microsoft’s [MSFT] share price has had a strong 2021. In the year-to-date, it’s up 16.02% (as of 8 June close), behind the tech-heavy Nasdaq’s 27.99% gain but outperforming Apple’s [AAPL] 2.06% dip in the same period.

As of 8 June, the stock was trading near its 50-day moving average, and above its 200-day moving average. It has dipped 4.2% since its 52-week high, but is up a substantial 37.26% since its year low.

We take a look at what’s powering Microsoft’s share price and ask if there’s any more upside in the stock.

 

What’s powering Microsoft’s share price?

Strong earnings

Microsoft’s share price has benefitted from the accelerated digital adoption brought about by the pandemic. In its most recent quarterly earnings, the company posted $41.7bn in revenue, up 19% year-on-year. Net GAAP income came in at $15.5bn, up 44% year-on-year.

Over the past four quarters, Microsoft has topped Wall Street earnings expectations. In its most recent report, the tech giant delivered earnings of $2.03, well ahead of the expected $1.78. For the current quarter, forecasts are calling for earnings of $1.90, up from $1.47 in the same quarter last year.

Investors will be hoping for continued strength in its Azure cloud computing business when the firm next updates the market. Gaming will also be a must watch — Xbox content and services revenue increased 34% in the third quarter yet the global semiconductor shortage could constrain sales, with gamers reporting delays in getting hold of Xbox Series X and Series Y consoles.

$41.7billion

Microsoft's Q3 revenue - a 19% YoY rise

  

While Microsoft failed to beat expectations by as much as some were hoping for — leading to a post-earnings dip in its share price — Wall Street is backing the stock. Nancy Tengler, chief investment officer at Laffer Tengler Investments, reckons buying Microsoft is a long-term prospect, telling CNBC’s Trading Nation in May:

“Microsoft has sort of been trading sideways, in line with the market this year, but grew revenues at 90% last quarter and raised guidance,” she said. “We like revenues because they’re a fact, so this is a company we want to own for the next three to five years or you want to buy for your grandkids.”

 

Expected release of the latest version of Windows

After those strong earnings, the next big date to watch out for is 24 June when Microsoft will unveil the next generation of its Windows operating system. Rumours of what’s in store include a major visual overhaul and a new Microsoft store.

"Soon we will share one of the most significant updates to Windows of the past decade to unlock greater economic opportunity for developers and creators. I’ve been self-hosting it over the past several months, and I’m incredibly excited about the next generation of Windows," Satya Nadella, Microsoft CEO, said.

“Soon we will share one of the most significant updates to Windows of the past decade to unlock greater economic opportunity for developers and creators. I’ve been self-hosting it over the past several months, and I’m incredibly excited about the next generation of Windows” - Satya Nadella, Microsoft CEO

 

Windows has continued to be a growth area for Microsoft. In the first quarter, Windows OEM revenue increased 10%, while Windows Commercial products and cloud services revenue increased 10%. Getting a new operating system right could see Microsoft’s share price gain, but getting it wrong — as they did with the unpopular Windows Vista in 2006 — could leave shareholders underwhelmed, with the stock suffering as a result.

 

Microsoft partners with Morgan Stanley

Microsoft has inked a contract with Morgan Stanley to manage the bank’s digital transformation program. The partnership will focus on developing and co-designing new application infrastructure in the financial services space, including product innovations for Microsoft Cloud for Financial Services, while enhancing the developer and employee experience.

What makes this partnership interesting is that Microsoft says it will broaden its current offering, creating “additional collaboration opportunities in the financial services industry ... and the broader developer experience”. This includes jointly working on “enhancing subsequent adoption of Microsoft GitHub”.

“As one of the most highly regulated industries in the world, financial services organizations’ journey to the cloud is extremely complex and nuanced,” said Scott Guthrie, executive vice president of Cloud + AI at Microsoft. “Bringing together Morgan Stanley’s financial services engineering expertise with Microsoft’s cloud and industry-specific experience, our partnership will empower innovation for the industry while ensuring stringent compliance and regulatory guidelines are met.”

“Bringing together Morgan Stanley’s financial services engineering expertise with Microsoft’s cloud and industry-specific experience, our partnership will empower innovation for the industry while ensuring stringent compliance and regulatory guidelines are met” - Scott Guthrie, executive vice president of Cloud + AI at Microsoft

 

Analyst price targets for Microsoft’s share price

Wall Street is bullish on Microsoft’s share price. Of the 34 analysts offering recommendations on Yahoo Finance, 14 rate the stock a strong buy and 13 a buy.

Jefferies’ Brent Thill has a $290 target on the stock, which would see a 14.8% upside. Morgan Stanley’s Keith Weiss shares this target to go with an overweight rating on Microsoft. Weiss sees the potential acquisition of messaging platform Discord, which is favoured by gamers, as something that could help unify Microsoft’s gaming offering through PC, Xbox and mobile. KGI Securities’ Freddy Chen has a slightly higher $300 price target on the stock, along with an outperform rating.

Microsoft’s share price has an average $293.37 price target from analysts on Yahoo Finance. Hitting this would see a respectable 15.6% upside on 8 June’s close.

Disclaimer Past performance is not a reliable indicator of future results.

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