Pandemic is 'zeitgeist moment' for cloud, Microsoft to top $2 trillion in 2 years, Wells Fargo says

Published Tue, Jun 2 20208:12 AM EDTUpdated Tue, Jun 2 202011:01 AM EDT

(This story is for CNBC Pro subscribers only.) The coronavirus crisis accelerated corporate America's need for cloud infrastructure, positioning Microsoft's Azure cloud business to drive revenue and market value in the coming years, according to Wells Fargo. The Wall Street firm — which has an overweight rating on the Satya Nadella-led technology giant — believes Microsoft's market capitalization can top $2 trillion in the next few years due to strength in its cloud business. "We believe the COVID-19 pandemic has created a Zeitgeist moment for the cloud as a whole— changing CIOs' cloud strategies forever...from which we expect Microsoft Azure to disproportionately benefit as the 'enterprise cloud'," Wells Fargo senior analyst Philip Winslow told clients. The fast-spreading coronavirus and the nationwide shutdown of the economy shifted companies' idea about cloud infrastructure. CIO's of major businesses, who have been forced to work-from-home during the pandemic, are rethinking their allocations for cloud services. "A 'no-cloud' strategy has officially become a 'no-go'," said Winslow. Amazon's AWS leads the market overall in terms of revenue; however, Wells Fargo said Microsoft Azure is narrowing the dollar revenue gap between it and AWS and widening the gap from Alphabet's Google Cloud. "Although investors have clearly turned positive on Microsoft Azure, we believe the full multi-year impact of Azure's growth potential is still not properly reflected in consensus estimates or the stock's valuation," said Winslow. For at least the next three to five years, Wells Fargo believes Microsoft can deliver low-to-mid teens revenue growth driven by growth in the cloud business, among other categories. Plus, Microsoft continues to control costs and consistently repurchase shares. Based on a 30 times forward earnings multiple, Wells Fargo estimates 2023 revenue of $68.2 billion. This would make Microsoft's market capitalization equal to $2.2 trillion, greater than Italy's GDP in 2019, noted Winslow. Microsoft's current market value is about $1.4 trillion. The firm said this market capitalization equates to $283 per share in two years. Based on these projections, Wells Fargo hiked its 12-month price target on Microsoft to $250 per share from $205 per share. Shares of Microsoft ticked up nearly 1% in premarket trading on Tuesday. — with reporting from CNBC's Michael Bloom.

Satya Nadella, chief executive officer of Microsoft Corp., pauses while speaking during a Microsoft product event in New York, U.S., on Wednesday, Oct. 2, 2019.

Mark Kauzlarich | Bloomberg | Getty Images

(This story is for CNBC Pro subscribers only.)

The coronavirus crisis accelerated corporate America's need for cloud infrastructure, positioning Microsoft's Azure cloud business to drive revenue and market value in the coming years, according to Wells Fargo.

The Wall Street firm — which has an overweight rating on the Satya Nadella-led technology giant — believes Microsoft's market capitalization can top $2 trillion in the next few years due to strength in its cloud business.