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Microsoft's surging cloud business Azure should terrify Amazon: analyst

Brian Sozzi

The steamroller known as the Microsoft Azure Express looks ready to run over Amazon Web Services (AWS) in 2020 and perhaps, beyond.

Closely watched tech analyst Dan Ives at Wedbush Securities told clients Thursday he is seeing stronger than expected deal activity for Microsoft’s Azure cloud business. In many cases, Microsoft is winning business from the long dominant AWS.

“Enterprise customers and partners we have spoken to over the past few weeks indicate a clear acceleration of larger and more strategic enterprise cloud deals as Redmond is poised to win the majority of the next phase of cloud deployments versus the likes of Amazon and Bezos,” Ives said in a new note.

Ives maintained his Buy rating on Microsoft’s stock (MSFT) and $195 price target, representing about a 20% upside from current levels.

Wall Street bullishness on the outlook for Azure is nothing new, in fact it has been a key driver of Microsoft’s stock surging 55% the past year. The upbeat stance has been warranted based on pure growth rates of Azure versus AWS, alone.

With a screen displaying some of the new Microsoft Azure services and updates in the background, Microsoft CEO Satya Nadella delivers the keynote address at Build, the company's annual conference for software developers Monday, May 6, 2019, in Seattle. (AP Photo/Elaine Thompson)

Sales for Azure spiked 59% in Microsoft’s most recent quarter compared to 35% growth for AWS. This continued a trend of Azure outpacing AWS’s growth as Microsoft gobbles up larger than expected deals with enterprise customers.

Now analysts such as Ives think Azure is poised to really outperform AWS’s sales due to it winning the coveted $10 billion JEDI cloud contract from the U.S. government. Although Amazon is contesting the bidding process created by the Trump administration, Microsoft Azure implementation is seen as inevitable.

“We continue to believe the ripple effect from Microsoft's landmark JEDI deal victory announced by the Department of Defense in October will be felt for years to come on both the government and enterprise fronts and thus indicates a seminal moment in the cloud battle between these two stalwarts,” Ives said. “We believe JEDI is a microcosm (we are seeing a number of other federal cloud deployments up for grabs over the coming months) of what we are seeing play out across the entire enterprise landscape; clearly Amazon won the first phase of cloud spending, but this next phase of cloud will be dominated by Redmond as it gains share and significantly narrows the gap over the coming years.”

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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