Can Microsoft Sustain Its Market-Beating Momentum In 2020?

Microsoft (NYSE:T) has been performing impressively so far this year primarily due to robust adoption of the company’s cloud computing platform, Azure. Growing utilization of Azure by enterprises across diverse industries is likely to be a major growth driver in 2020.

Notably, shares of this Redmond-based tech giant has returned 53.7% year to date, outperforming the industry’s, sector’s and S&P 500 index's rally of 43.1%, 33.1% and 28.8%, respectively, on a year-to-date basis.

Moreover, Microsoft surpassed estimates in the trailing four quarters by 9.64%, on average. The Zacks Consensus Estimate for fiscal 2020 earnings increased 2.7% to $5.35 per share over the past 60 days.

Year-to-Date Price Performance



Expanding Azure Clientele: A Key Catalyst

Per a report from Synergy Research Group, Azure witnessed expansion in public cloud services market in third-quarter 2019. The company won a plethora of contracts that not only improved its market share but also clientele, this year.

Moreover, Azure won deals across different industries. On the defense front, the company clinched the 10-year Joint Enterprise Defense Infrastructure (JEDI) project worth $10 billion from the Department of Defense, which highlights Azure’s strength.

Meanwhile, Microsoft’s recent partnership with Nuance Communications, which is one of the leading solution providers in the healthcare virtual assistants market, to accelerate the utilization of ambient clinical intelligence (ACI) technology, holds promise. Moreover, Microsoft’s ongoing healthcare initiatives include collaboration with Providence St. Joseph Health, Walgreens Boots Alliance (NASDAQ:WBA) and UCLA.

Azure intends to usher in digital transformation in oil and gas enterprises in association with Baker Hughes (NYSE:BKR) and C3.ai. Notably, Azure is also set to disrupt oil and energy industry in 2020 with these partnerships.

Further, the company’s cloud computing platform already boasts of prominent retail players under its umbrella, including Walmart (NYSE:T) , The Gap, The Kroger (NYSE:KR) Co. and Columbia Sportswear.

Other Azure deal wins that deserve a special mention include Walt Disney (NYSE:DIS), AT&T (NYSE:T) , NTT Corporation, KPMG, Sony, BMW, LG, and salesforce.com (NYSE:CRM) .

We believe the aforementioned deal wins will instill optimism regarding Azure’s business prospects in 2020. Moreover, recent acquisition of Movere is expected to enhance Azure’s cloud-migration solution, Azure Migrate.

These initiatives and new deal wins are expected to aid Microsoft in gaining a competitive edge against Amazon’s (NASDAQ:AMZN) cloud arm Amazon Web Services (AWS), Alphabet’s (NASDAQ:GOOGL) Google Cloud Platform (GCP), IBM (NYSE:IBM) Cloud, to name a few.

Focus on Enhancing Enterprise Productivity Holds Promise

Microsoft is strengthening services across the board — hardware and software alike — by integrating advanced AI and ML tools, aimed at enabling users to access data on the go.

At Microsoft’s October 2019 event, the company unveiled a slew of Surface devices, focused on improving worker productivity in the office or on the go. Notably, two new dual-screen devices, Surface Duo and Surface Neo, designed to enhance productivity for on-the-go mobile workers, hogged the limelight at the event. These devices are slated to release in holiday 2020.

While detachable and convertible laptops have been in the market, sleek foldable dual-screen devices that fit in the pocket is a novel concept. This bodes well for Microsoft.

We believe the new products will help the company to capitalize on emerging BYOD market, enterprise productivity and ed-tech verticals.

Moreover, the tech giant is strengthening Office 365 and Dynamics 365 suite of solutions to boost enterprise productivity. Launch of HoloLens 2 and Azure Kinect DK, and recent acquisition of Mover, remain crucial in this regard.

Rising spend on enterprise and business productivity amid ongoing digital transformation is anticipated to expand business avenues for Microsoft in 2020.

The aforementioned factors are expected to aid Microsoft 365 solutions to strengthen its competitive position in the business productivity software market over Cisco’s Webex, Google G-Suite, Zoom, Dropbox, among others.

Growth in Gaming Business and LinkedIn (NYSE:LNKD) Revenues

In gaming segment, Microsoft is expected to benefit from robust increase in Xbox Live monthly active users and adoption of Game Pass subscriptions.

Microsoft is not only focusing on exclusive original content but also making gaming easily accessible to all consumers including mobile users. This, in turn, is likely to keep gaming revenues ticking in the days ahead.

The company is also striving to enhance LinkedIn platform with robust AI, CRM capabilities at different levels, while maintaining user data privacy preferences.

LinkedIn is strengthening employee management tools (Glint buyout) and advancing marketing strategies (Drawbridge acquisition), which favors growth prospects.

Robust performance of LinkedIn’s subscription products comprising membership, recruitment and education programs remain key catalysts.

Zacks Rank

Microsoft currently has Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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