Brent Bracelin of Pacific Crest reaffirmed his Overweight rating on Microsoft Corporation (NASDAQ: MSFT) as he believes Microsoft’s Azure is gaining ground as a cloud alternative to Amazon.com, Inc. (NASDAQ: AMZN)’s AWS.
“Favorable feedback from cloud partners, who historically have been more skeptical of Microsoft Azure, has turned incrementally more positive as it becomes a viable alternative to AWS,” Bracelin wrote in a note.
Microsoft’s Heavy Investments Paying Off
Heavy investments from Microsoft in Cloud now appear to be paying off this year and the recent AWS outage may have also turned some tide in favor of competitors.
There's no doubt AWS still enjoys a first-mover advantage and boasts a ~5x larger IaaS revenue base than Azure, the analyst sees the feature set and global footprint gap narrowing materially this year.
“Microsoft Azure, in particular, appears to be gaining ground within large enterprises as not only a functional substitute for AWS, but also as having unmatched product breadth that spans both on-premise and cloud environments,” Bracelin highlighted.
Meanwhile, Azure’s $2.5 billion run rate and Microsoft’s overall commercial cloud run-rate at $14 billion remains very small relative to $1.3 trillion in IT spending, excluding communications. In addition, the shift to cloud could be a decade long tailwind for Microsoft, AWS and Google.
The Build developer conference in Seattle on May 10 is the next potential catalyst that could further expose Microsoft's cloud pedigree.
Bracelin said Microsoft shares have multiple upside levers including commercial cloud momentum across Azure, Azure Stack and Office 365, new product cycles, Win10 commercial adoption and improving margins.
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