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Microsoft (MSFT) 2nd Quarter Earnings: What to Expect

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Can Microsoft (MSFT) shares, currently trading at around $93, crack the $100 threshold for the first time in its history? That question will be answered Wednesday when the world’s largest software company reports second quarter fiscal 2018 earnings results after the closing bell.

And the company’s cloud transition will be the key driver towards that benchmark. If you ever want to know just how valuable Microsoft’s global cloud shift has been, consider this: Microsoft stock, which is currently trading at all-time highs, have returned some 240% over the past five years, compared to only a 90% rise for the Dow Jones Industrial Average during that same span.

What’s more, with the company’s market cap now resting at around $725 billion, having crossed the $700 billion market cap threshold this month, this means Microsoft has added more than a half a trillion dollars in market cap over the past five years. All of this wealth creation is driven by stock CEO Satya Nadella’s cloud-first strategy.

But for the stock to maintain its upward trajectory, Microsoft, which has beaten Wall Street’s earnings estimates in nine straight quarters, must project confidence that it has more room for growth.

For the quarter that ended December, the Redmond, Wash.-based tech giant is expected to deliver earnings per share of 86 cents on revenue of $28.38 billion. This compares to the year-ago quarter when the company earned 80 cents per share on $26.07 billion in revenue. For the full year, ending June, earnings are projected to rise 3% year over year to $3.40 per share, while full-year revenue of $106.39 billion would mark a year-over-year increase of 10.2%.

Just as important as a top and bottom-line beat, the company’s Azure cloud must take the next step towards supplanting Amazon’s (AMZN) AWS cloud platform as the dominant solution. Evercore analyst Kirk Materne last quarter noted that Microsoft’s Azure could grow at around 70% to 80% in fiscal year 2018, citing new Azure features such as speech recognition and other tools, which he says brings Azure closer to Amazon’s AWS. There’s evidence to suggest that Evercore’s forecast is coming to fruition.

KeyBanc Capital Markets analyst Brent Bracelin, earlier this month, noted that among the top sixty cloud vendors, Microsoft has gained the most cloud market share, topping the aforementioned Amazon and Google (GOOG, GOOGL). Of the total addressable public cloud market, which Bracelin estimates to be about $106 billion, 20% of it now belongs to Microsoft. And the analyst estimates the cloud market to grow some about 200% to $314 billion by 2022.

MSFT stock has begun 2018 on the right foot, gaining 12%, besting the 7% rise for the S&P 500 index. Assuming Microsoft’s slice of the cloud pie grows commensurately with Bracelin’s four-year projections, MSFT stock is certain to climb too. As such, it would be a mistake to part with this winner right now.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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