Market Extra: Microsoft could be a $1 trillion company in a year, Morgan Stanley says

One of the biggest companies in the world, which has already seen steep market-valuation gains over the past year, may not be anywhere near done growing.

According to Morgan Stanley, software giant Microsoft Corp. MSFT, +0.23% has a number of factors working in its favor, all of which create a “framework for a $1 trillion market cap … and beyond.”

Microsoft, based on its Wednesday closing price, has a market capitalization of $746.4 billion, making it the fourth most highly valued stock in the U.S. equities market behind Apple Inc. AAPL, +0.27% , at $924.9 billion; Amazon.com Inc., at $770.2 billion; and Alphabet Inc., the parent company of Google, at $752.1 billion.

While Microsoft has gained nearly 45% over the past 12 months — a gain that has taken it to repeated record closes, and far eclipses the 15.5% rise of the S&P 500 SPX, +0.30% — it would have to rise by another third to hit the trillion-dollar threshold. However, Morgan Stanley sees this as achievable over the coming year, in particular citing its Azure cloud-computing division as a catalyst.

The investment bank’s base-case scenario is that Microsoft’s stock rises 33% over the coming 12 months, a gain that would carry it to about $130 a share, lifting Microsoft’s market cap to roughly $1 trillion. The Morgan Stanley bear case sees it dropping by a third over the same period, while the bull case would have it surge 60% over the coming year.

“Revenue drivers including Azure (Microsoft emerging as a public cloud winner), data center (share gains and positive pricing trends), Office 365 (base growth and per user pricing lift) and the integration of LinkedIn should drive durable double-digit revenue growth over the next three years,” the investment bank wrote to clients. It added that Microsoft’s return on equity, which has been slumping for years, could be poised to bottom this year and then turn higher.

“With double-digit revenue growth, improving gross margins, continued [operational expenditure] discipline and strong capital return, we see a durable teens total return profile,” Morgan Stanley wrote of Microsoft.

Morgan Stanley rates Microsoft overweight, its equivalent of a buy rating, and it named the Dow DJIA, +0.22% component as one of its top 30 stock picks for the coming three years, along with Amazon AMZN, +0.31% , Alphabet GOOGL, +0.52% , JPMorgan Chase & Co. JPM, +0.04% , Visa Inc. V, -0.07% and Walt Disney Co. DIS, +0.10% .

See the full list: Here are Morgan Stanley’s top 30 stock picks

No U.S. stock has yet reached a market cap of $1 trillion, but this is a threshold that could be broken multiple times over the coming year, according to analysts.

Based on its Wednesday close, Apple would need to rise just 8.1% to hit the milestone. Angelo Zino, senior industry analyst at CFRA Research, has a price target of $210 on the tech giant, a level that implies a $1 trillion–plus market cap.

“Apple’s iPhone business is even more stable than we thought, supporting free cash flow generation,” he wrote in a recent report. “More importantly, [Apple] has been able to successfully increase prices for its iPhones.”

Opinion: Here’s how Apple gets to a $2 trillion market value

Amazon could also join the zero-member 13-digit club. In November, Morgan Stanley suggested this was possible, saying that if you evaluated the e-commerce giant on a sum-of-its-parts basis, its individual market segments were worth more than Wall Street appreciated.

Filed in: Top News Tags: 

You might like:

Why real-estate investors should steer clear of Turkey Why real-estate investors should steer clear of Turkey
NewsWatch: Meet the tech-savvy upstarts who think they can finally give Realtors a run for their money NewsWatch: Meet the tech-savvy upstarts who think they can finally give Realtors a run for their money
The Wall Street Journal: Trump slams social-media companies for ‘censorship’ of the right The Wall Street Journal: Trump slams social-media companies for ‘censorship’ of the right
Economic Preview: Sky is clear for sunny U.S. economy, but clouds are forming Economic Preview: Sky is clear for sunny U.S. economy, but clouds are forming
NewsWatch: The questions every investor should ask about Trump’s proposal to radically change how companies report earnings NewsWatch: The questions every investor should ask about Trump’s proposal to radically change how companies report earnings
Saving in a 401(k) for the first time? Here’s what you need to know Saving in a 401(k) for the first time? Here’s what you need to know
The Wall Street Journal: Kofi Annan, former UN secretary general, dies at 80 The Wall Street Journal: Kofi Annan, former UN secretary general, dies at 80
What you probably don’t know about Social Security What you probably don’t know about Social Security

Leave a Reply

Submit Comment
© 2018 Stock Investors News. All rights reserved. XHTML / CSS Valid.