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Microsoft CEO Satya Nadella 'changed the direction of the company': Analyst

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  • MSFT

Dan Ives, Managing Director and Senior Equity Analyst at Wedbush Securities, joins Yahoo Finance Live to discuss the outlook for Microsoft, which was named Yahoo Finance's 2021 Company of the Year.

Video transcript

[MUSIC PLAYING]

BRIAN SOZZI: All right, the votes are in and Microsoft is the Yahoo Finance Company of the Year. Is there any upside left in the tech giant's stock, though, after a strong run this year? Dan Ives covers Microsoft and, really, pretty much the whole entire tech sector at Wedbush and joins us now. Yahoo Finance tech editor Dan Howley is here as well.

Dan Ives, good to see you as always. I'll start with you. Microsoft is only about 23% away from reaching a $3 trillion market cap. Do you think they hit it next year and how would they do that?

DAN IVES: Oh, I think they clearly hit it just given what we've seen in Cloud. But we're only about 35% through the cloud shift, with Microsoft leading the way, and I think that's what we've seen with the stock. It's a re-rating as investors further understanding just how this growth story is really seeing a renaissance in Redmond. And to me, this continues to be our view, that this is a $3 trillion market cap first half of '22.

DANIEL HOWLEY: Dan, this is Dan. I want to ask, you know, what you think Microsoft can do to kind of speed up the growth because there's been talk about potential slowdown next year. And, you know, what is the main, I guess, you know, weapon they can use to offset any kind of slowdown?

DAN IVES: Yeah, it's a great question. Remember, the haters talked about a slowdown a year ago. So I think that's really been what's happening in the story, is that it's actually accelerated when it comes to the cloud because now we're seeing Office 365 Azure. That's really the combo that's starting to be in the sweet spot of Microsoft's backyard.

And if I look at just the secular trends, you know, you talk about DocuSign, some of these work from home names that have gotten crushed, I don't put Microsoft in that camp. I think this digital transformation is the fourth Industrial Revolution that's going to continue to be the fuel in the engine for Microsoft. Also, I continue to see share gains versus the likes of AWS. That's something to put on the radar.

DANIEL HOWLEY: Yeah, I just kind of want to ask about what you think Satya Nadella has done well-- Microsoft CEO Satya Nadella. What has he done, in particular? And, you know, the cloud story kind of kicked off originally under Ballmer to a degree with the announcement of Azure, or the release of Azure, but Satya has been there in the cloud division forever. I guess, what has he done well as far as his transition to CEO to really push Microsoft to where it is now?

DAN IVES: Look, we can say Nadella, in my opinion, is one of the most successful CEOs in tech over the last 25 years. I mean, what he did at Microsoft, took out the red tape, you know, ripped off the Band-Aid when it came to Nokia and some of these other initiatives, and focused the whole company on cloud. There was a lot of pushback when he first started to do it.

And, ultimately, if you look, he's changed the direction of the company. I mean, now Microsoft's a cloud behemoth and the cloud valuation alone is $1.3 to $1.4 trillion. And I think it's unique that you can have one individual change the culture as well as the strategic vision like Microsoft's done. And the Street now has really started to understand what that vision looks like financially speaking in terms of what we're seeing with double-digit growth.

DANIEL HOWLEY: I just want to ask quickly on the metaverse, right? That was kind of the key word or go-to word for tech companies. What is Microsoft going to be doing there and will they be successful in this kind of, I guess, new internet that these companies are really kind of pushing?

DAN IVES: Well, that's probably the one area that Microsoft's not been successful. I mean, if you look at consumer strategy, it's been a treadmill approach versus the enterprise, which has just been massively robust. I think when it comes to metaverse they'll be extremely well-positioned, especially on the gaming side as well as the overall consumer footprint.

I could see them doing acquisitions on the metaverse. I know when that's important is with antitrust across the board, Microsoft is the one that has a lot more flexibility with M&A versus their big tech stalwart brethren, so I think metaverse is an area Microsoft could actually go on the offensive when it comes to 2022.

JULIE HYMAN: Hey Dan, it's Julie here. I want to switch gears because we've got you on a fortunate day, a day that you and a lot of your peers in the industry initiated coverage of Rivian, and there's also just generally a lot going on in electric vehicles today from a regulatory perspective as well. But let's stick with Rivian for a minute.

You've got an "outperform" on the stock, you've got a $130 price target here and you think, you know, the valuation's high but this is still an attractive bet here. When you're assessing these startup EV companies, like, how do you do it? How do you know which ones are going to be the winners here?

DAN IVES: Well, and let's just go back. I mean, if you focused on valuation and looking out the next year, you would have missed Netflix, Amazon, Apple, Tesla, are another. So I just never view these transformational growth companies valuation over the next year or two.

When I look at Rivian next to Tesla and GM, it's the only vertically integrated EV play out there. And I think what RJ has done in terms of specifically going after pickup and SUV, I mean, that's over a trillion of our $5 trillion market over the next decade and I think that's the huge opportunity.

And it's unique, because with Amazon, Ford, and others, they've gotten to scale very quickly in terms of that factory in Normal, Illinois, which I've spent a lot of time at. And I view Rivian as kind of one of the next leaders of EV, but it's not a zero sum game. I disagree with some. This is not Tesla or Rivian. Talks about this green tidal wave, Rivian is going to be a big player, along with Tesla leading the market.

DANIEL HOWLEY: Well, Dan, the current leader in EVs is in fact Tesla, and Reuters reporting this morning here that the SEC is investigating claims around its solar panels. As an analyst that has covered Tesla for some time, is this a big deal to you and are you a buyer of the stock here?

DAN IVES: The solar strategy going back to the acquisition, it's been a black eye for Tesla from the beginning and I think part of the frustration of investors is that it's been a sideshow and it continues to sort of be an overhang in the stock that comes up every six to 12 months.

And I think this is just another example of how Tesla should stay in their swim focused on core EVs, especially with this arms race playing out. But a lot of sensitivity what you're seeing across the EV space and investors are going to put the company a little in the penalty box because of this.

BRIAN SOZZI: All right, we'll leave it there. Dan Ives at Wedbush, always good to see you. And Yahoo Finance's tech editor Dan Howley, good to see you.

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