Strong focus on its public cloud business has boosted investor confidence and fuelled Microsoft's growth in the last 12 months.
Earlier in the year, investment bank Morgan Stanley released an estimate saying Microsoft could reach $1 trillion in valuation by the end of 2018. The software giant has taken a step further in that direction.
It became the third-most valuable corporation in the world after surpassing Google parent Alphabet’s market cap on May 30. Microsoft’s valuation now stands at $753 billion, while Alphabet is worth $742 billion. Apple and Amazon lead with market caps of $924 billion and $783 billion respectively.
All four companies — the Big Four of consumer tech — are in the race to reach the magic $1 trillion mark.
Microsoft and Alphabet closely compete for the third spot, and the former has managed to surge ahead for the first time in three years. Impressive growth in its cloud computing division has garnered investor confidence, triggering Microsoft’s bull run. In the last 12 months, Microsoft stock has grown nearly 40 percent - more than 5X that of Alphabet’s.
According to a Morgan Stanley estimate, Microsoft's cloud business could double in the next three years, propelling it to the $1 trillion market cap figure.
Keith Weiss, Equity Analyst at Morgan Stanley, stated,
“With public cloud adoption expected to grow from 21 percent of workloads today to 44 percent in the next three years, Microsoft looks poised to maintain a dominant position in a public cloud market we expect to more than double in size to >$250 billion.”
Focus on cloud driving growth
In March, Microsoft restructured its Windows and Devices Group and moved its engineering resources into other business units, including one dedicated to cloud and artificial intelligence. The company is increasingly building an identity around Cloud, and moving away from its traditional Windows-centric image.
The products in focus now are Azure (its public cloud platform) and Microsoft 365 (a new suite that bundles Windows as well as Office 365 productivity software). This is aligned with CEO Satya Nadella’s vision. He’s propagated a “cloud-first” approach at Microsoft ever since he took over from Steve Ballmer in 2014.
He’s taken Azure to the second spot in the public cloud market. Azure has a 13 percent market share, trailing only Amazon Web Services (34 percent share), according to Synergy Research Group. Microsoft competes with the likes of Google, IBM, Oracle, Salesforce, Cisco, and Adobe in the public cloud market.
Other business divisions likely to play a key role in the race for $1 trillion are gaming (Microsoft owns both hardware and software for Xbox products) and LinkedIn (professional networking site which Microsoft acquired for $26.2 billion in 2016). In 2017, ‘Jobs’ visitors on LinkedIn increased 65 percent, while messages sent on the platform grew 40 percent.
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