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Microsoft (MSFT) Hits 52-Week High: What’s Behind the Rally?


Shares of Microsoft Corporation MSFT rallied to a 52-week high of $88.41 on Jan 5, eventually closing marginally lower at $88.19. The momentum can be attributed to its recent acquisition of Avere Systems as well as increasing traction in blockchain technology.

Notably, the stock has returned 40.8% in the last year, outperforming the industry’s rally of 37.5%. The stock has a market cap of $653.35 billion.

What’s Driving the Stock?

Microsoft’s acquisition of Avere Systems, a start-up specializing in data storage systems, will help strengthen and increase the use of Microsoft’s Azure public cloud. Microsoft’s cloud services are a major contributor to its revenue stream. As per the company’s first quarter fiscal 2018 results, server product and cloud services revenues went up 17% year over year, with Azure revenues soaring 89% in the same period.

Microsoft is also gaining from its increasing traction in blockchain technology. Its collaboration with Bank Hapoalim for the use of blockchain technology for digital bank guarantees is aiding Azure to penetrate the cloud market.

Recently, the company released updates for Windows to prevent malware attacks from exploiting Meltdown Vulnerability in Intel x86-64 processors. This software update is part of a series of updates that will shield against the newly discovered processor bug in Intel, AMD and ARM chipsets.

Microsoft is also one of the largest providers of gaming hardware. The Xbox One X has a wide adoption rate as evident from its early sales figures. It has been outperforming Sony’s PS4 Pro by a severe margin. Moreover, high product adoption rates as well as robust performance from its surface line of devices are driving the top line.

Cloud Platform and Collaborations Back Growth

Microsoft’s Azure has seen a significant boost due to the increasing adoption of cloud-based technologies. The company’s collaboration with Symantec Corp SYMC to increase the latter’s operational efficiency by incorporating hybrid cloud technology has been a major revenue generator.

Moreover, continuing robust adoption of Azure will drive Microsoft’s top-line growth. According to data from Synergy Research, Azure trailed only Amazon Web Services in the cloud infrastructure services market.

Additionally, the acquisition of AltspaceVR and launch of mixed reality headsets are evidence of its advancements in the fields of virtual reality and augmented reality. Moreover, strategic partnerships with Amazon Inc’s AMZN Alexa and Red Hat are positives for the company's growth prospects.

Encouraging Earnings Surprise History

This Zacks Rank #2 (Buy) stock outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average positive earnings surprise of 16.39%.

Further, the company has a long-term expected EPS growth rate of 12.68%.

Key Pick

A better-ranked stock in the broader technology sector is NetApp IncNTAP sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NetApp has a long-term expected EPS growth rate of 11.34%.

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