The Redmond, Washington-based tech giant's focus on cloud through its Azure service over recent years is beginning to pay dividends, according to watchful investors and analysts.
Ivan Feiseth, CIO of Tigress Financial Partners, told Real Money that Microsoft should continue to nip at Amazon's tail in cloud market share.
Amazon had 40% of the cloud business at the end of 2017; Microsoft had 23%.
"Azure has grown almost 100% per quarter," Feiseth explained. "I expect that growth trend to continue moving forward."
He added that the company's focus on hybrid solutions rather than simply the public cloud is key to its success.
"Everyone wants hybrid because up there with cost effectiveness and efficiency is security," he said.
Given recent data privacy issues at many tech giants, he expects the added layer of coverage from a dedicated server to pacify user concerns on fully public cloud platforms like Amazon.
Given the Microsoft's discount both on its recent dip and in PE multiple relative to competitors like Amazon, Feinseth stated he is confident in the company both as an analyst covering it and an investor in the company on behalf of clients.
"The recent dip is absolutely a buying opportunity," he said.
Jim Cramer's Action Alerts Plus team has likewise praised the company for its important inroads into Amazon's domination of cloud.
"We remain bullish on shares of MSFT as we continue to view the cloud as the future of computing and view Microsoft as being a leader in the space thanks to its robust Azure platform and hybrid model, a significant factor differentiating it from Amazon's AWS, which requires other providers to help with on-premise integration," the team said in their report amid last week's pullback.
They advised buying on the stock's recent weakness and raised their rating to a "one," meaning it is a stock they would buy right now.
Suffering from Success
Another aspect, aside from security that has helped the company gain market share is the fact that it benefits from Amazon's onslaught on certain sectors that will use cloud software, namely retail.
Most notably, the company embarked upon a strategic partnership with Walmart (WMT) , which in turn told suppliers to pick up on both the Azure and 365 programs from Microsoft.
With the amount of industries Amazon has become famous for disrupting, Amazon has severely hindered its growth given the hesitation of businesses to help a prime competitor.
Of course, when competing with the elephant in the cloud space, Amazon, challenges loom large. Retail sector gains will not suffice when Amazon is projected to control more than half of the cloud market by 2020.
"Azure will be a meaningful Cloud participant, but may not attain anywhere near the profit profile of AWS, raising the risk of this business," Jefferies analyst Difucci pointed out.
He explained that the company falling behind in the race early on may keep it from catching up.
"We don't believe that Azure reaching scale and profitability in the same trajectory and fashion as AWS should be a foregone conclusion, as we believe is assumed by some investors," he wrote. "Given the competitive market and need to invest in both capex and operating expenses, profitability along AWS's level may prove elusive for Azure for several years, if not forever."
According to FactSet, Difucci is the only analyst polled with a "sell" rating on the stock.
Amazon has recently made a move to partner with VMware (VMW) in order to bridge the gap in its cloud coverage.
Unfortunately for Amazon, from what the deal has shown so far, it has not slowed Microsoft's growth.
The herd of analysts, including the black sheep in Difucci, will be looking to the earnings call next week to see if the Azure segment can continue to accelerate into blue -sky territory, or if Amazon can rain on its growth parade.
If the company can come anywhere near the 85%, 89%, 98%, and 89% growth its charted over the last four quarters investors will be looking to buy the dip the company has found itself in amid panicked selling.
Microsoft stock remains down by nearly 2% to $109 in mid-day trading.