Analysts expect this to happen by FY2021

Dec 11, 2017 05:47 GMT  ·  By
Microsoft's cloud service will become the main engine to power the company's growth
   Microsoft's cloud service will become the main engine to power the company's growth

Microsoft’s cloud business has flourished since Satya Nadella replaced Steve Ballmer at the helm of the firm, and now analysts expect it to continue growing to the point where it’d help the company reach a valuation of $1 trillion.

Evercore analysts Kirk Materne, Fenn Hoffman, Tom Mao and Daniel Greenfield expect this to happen by 2020 or by the end of fiscal year 2021, when they say the Microsoft Office 365 commercial business and Azure public cloud would be the software giant’s main catalysts of growth.

While the Office 365 consumer business will bring back some $5.18 billion in revenue to the company, it’ll be the commercial side of the productivity suite that’ll account for a bigger part of revenues, with analysts estimating $26.86 billion for fiscal year 2021.

Apple also on its way to $1 trillion market valuation

Microsoft Azure will also continue growing in the coming years and in 2021 it should achieve $22.19 billion in revenue, the analysts estimated.

“While we believe best in breed offerings such as Okta for IAM, Tableau /Qlik for BI/Analytics, Box /Dropbox for collaboration, or VMWare AirWatch for EMM will maintain their respective leadership positions, on the margin, we expect Microsoft 365 to win incremental share over time due to its ease of integration with the broader Office productivity platform and enterprise customers' proclivity to buy a 'suite' of products vs. best of breed solutions, especially in the SMB market where IT resources are scarce,” the analysts said.

“As Azure's revenue scales across a more fixed base of infrastructure investments, we believe Azure has the potential to drive meaningful operating leverage and FCF over the next 4 years and should ultimately reach 30%+ op. margins (vs. AWS at 25% today), to become one of Microsoft's core earnings and FCF drivers over the next decade.”

Microsoft, however, won’t be the first tech company to achieve a $1 trillion market cap, as long-time rival Apple is likely to do the same thing a lot sooner.

Apple was projected to surpass the $1 billion market valuation milestone by the end of the year, but now analysts expect this to happen in 2018 as a result of strong iPhone X sales.

The company nearly touched this historical threshold in early November after launching the anniversary iPhone X, as shares improved 3 percent to push the company’s valuation to approximately $900 billion for the first time.