Why is This Analyst So Bullish on Microsoft (MSFT) Stock?

The 'fear trade' that's hit big tech names presents a rare buying opportunity.

Microsoft MSFT Stock

Analysts at Goldman Sachs (MYSE:GS) are out with a report this morning upgrading shares of Microsoft Corporation (NASDAQ:MSFT) with a ‘Buy’ from ‘Neutral’ rating. The firm raised its price target for the company to $68 from $60, implying 14% expected return. The Redmond, Wa.-based software giant closed yesterday up $0.78 to $59.65.

Investors should buy Microsoft stock because earnings will top expectations in coming years due to its cloud computing business, Goldman’s Heather Bellini writes in her note to clients, noting “Azure” – Msoft’s open cloud computing platform – is the number two market share vendor in the cloud space, and has grown over 100% on a year-over-year [y/y] basis eight of the last ten quarters with growth accelerating in Q316.

It should be noted that in July, following the company’s Q4 earnings report, Microsoft continued to claim big cloud momentum, reporting the component grew about 7% y/y to $6.7 billion from about $6.3 billion.

Bellini thinks Azure can continue to grow revenue and improve margins over time as cloud profitability increases and “operating expense growth remains muted.” Further, the analyst thinks that given Redmond’s large customer base – back in July CEO Satya Nadella asserted that 80% of the major big banks are already Azure customers –  there is upside potential to out-year earnings forecasts for the company.

“We have high conviction in our above consensus revenue and non-GAAP EPS forecasts for the next few years,” Bellini writes.

The analyst seems to share the same views on Microsoft stock as CNBC’s Pete Najarian who says this is the tech name to buy.

Najarian believes that Microsoft’s fundamental structure allows the company to be worth the buy.

“You got more than $137 billion in this company,” said Najarian. “You’ve got a company that’s giving you incredible yield and share repurchase. When you combine all of that with the growth, I think right now this is a great buy in the $58 area.”

Stock Action

Microsoft shares are currently priced at 29x this year’s forecasted earnings. Ticker has a forward P/E of 18.7 and t-12 price-to-sales ratio of 5.5. EPS for the same period is $2.09.

In the past 52 weeks, shares of the tech giant have traded between a low of $48.03 and a high of $61.37 and are now at $60.36.

Shares are up 15.70% year-over-year and 10.47% year-to-date.

In other tech news this morning, Piper Jaffray issued a report saying the “fear trade” that’s battered Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Google-parent Alphabet Inc (NASDAQ:GOOGL), Facebook (NASDAQ:FB) and Netflix (NASDAQ:NFLX) presents a rare buying opportunity.

Large-cap tech names have shed billions in market cap on concerns about the industry’s future under ‘The Donald’. Piper however, feels that election talk is unlikely to manifest itself in actual policy.

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