Microsoft stock could tumble this week as Amazon unveils new cloud products at its annual AWS re:Invent conference, but some on Wall Street advise investors to buy any weakness that might develop. Indeed, Microsoft stock began to pull back on Wednesday, possibly in response to the conference announcements, but Azure Stack could be just what the legacy tech firm needs to combat the newer, trendier Amazon.
Positive initial response to Azure Stack
Piper Jaffray analyst Alex Zukin said in a note this week that he believes Azure Stack will play a major role in the growth of Microsoft’s cloud business. He describes Azure Stack as “the first hybrid cloud platform with a direct connection to a pure hyperscale cloud,” which enables developers to “write once and use anywhere.”
He feels that this truly sets Microsoft’s cloud business apart from others because it’s the only one that offers a consistent experience for developers, from infrastructure to platform and application. Meanwhile, customers also receive “unlimited deployment choice” even though they’re only working with on cloud vendor.
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Zukin’s early checks indicate that service providers are embracing Azure Stack and see it up against the VMWare stack. He added that Azure Stack just became available in late August at Microsoft’s Envision and Ignite conference. Further, 300 of the 500 service providers that attended the conference had signed up already to provide data centers for Azure Stack.
Azure Stack expands addressable market
He sees this strong response as a big positive because it extends the reach of Microsoft Azure far beyond the 44 data center areas Microsoft currently owns. It also means that Azure is stretched into the data centers operated by service providers around the globe. Even customers in remote areas where Microsoft won’t build data centers can receive all of Azure’s benefits from local service providers.
Zukin said partners expect early adopters to be in Europe, especially Scandinavia, and industries with a lot of regulation, including healthcare, mining, oil and gas, aerospace, and defense contractors. The reason companies in these areas are expected to be early adopters of Azure Stack is because it addresses all of their needs in the areas of data control and sovereignty.
Everything rides on Microsoft’s cloud business
Piper Jaffray has an Overweight rating and $100 price target on Microsoft stock, due in part to the opportunities offered by Azure Stack.
UBS analysts also name Microsoft as a top pick in the software sector because they feel the revenue potential is bigger than what investors believe it to be. They also feel that Microsoft and their other top software picks are “pushing the limits of traditional software use,” which in turn is creating big revenue opportunities.
Others are also praising Microsoft’s cloud business and emphasize it as the company’s future. Microsoft has been growing strategic partnerships to advance its cloud business, like the deal with SAP that was announced recently.
Amazon is the biggest barrier to success in the public cloud, as its share is much larger at 44% of the infrastructure-as-a-service industry, versus only 7.1% for Microsoft, according to data from Gartner. Still, CNBC’s Jim Cramer said recently that Microsoft has more data center regions than Amazon does. He added Microsoft stock to his Action Alerts PLUS charitable trust portfolio this week, The Street reports.
The fact that Azure Stack should increase Microsoft’s data center regions even further and into remote locations makes the potential of the company’s cloud business look even greater.
Microsoft stock declined by as much as 1.31% to $83.76 in intraday trading on Wednesday.