Microsoft ‘s (NASDAQ: MSFT) stock price selloff has created an attractive buying opportunity, with analysts’ calling it an outperformer of the bear market and a leader in the next stock market rally. The whopping 775% demand growth for cloud services last week, reported by the traded firm is the main reason behind the optimism. Is commercial cloud revenue stood around $12.5bn in the second quarter.
The company said it is seeing robust usage increases in services that include Microsoft Teams, Windows Virtual Desktop, and Power BI – with most of the demand coming from regions that have enforced social distancing or lockdowns. It’s Windows Virtual Desktop usage surged close to threefold last week.
“We have seen a very significant spike in Teams usage, and now have more than 44 million daily users. Those users generated over 900 million meeting and calling minutes on Teams daily in a single week,” Microsoft says.
Besides the demand side, Microsoft has a cash pile of $136.6bn with a free cash flow generation potential of $7bn. Dividends also appear safe considering its cash generation potential and growth in demand. The company currently offers a quarterly dividend of $0.51 per share, yielding around 2%. It has increased dividends over the past 16 consecutive years. Its revenue stood around $36bn in the latest quarter while the company generated earnings per share of $1.51 per share
The latest acquisition of 5G software maker Affirmed Networks for $1.4bn hints Microsoft’s confidence in its cash generation and future fundamentals.
While Microsoft stock price is down significantly from its all-time high of $190 a share, Wedbush analyst Daniel Ives says the selloff is an attractive buying opportunity and sets a price target of $210. “Even a 10%-plus ‘haircut’ to the cloud and enterprise drivers leaves what we value as a $900bn to $1trn valuation cloud franchise,” Ives said.
