Microsoft - Upgraded

I have some personal experience with the new product offerings from Microsoft (MSFT), and there are some strong indications now that they are starting to “get it”. I was quite disappointed when they chose to not make the Surface tablet a ‘loss leader’ to get people onto the windows tablet (Win8 RT). However when the second generation Surface Pro2 came out we purchased a few to replace aging laptops for some executives. They have made excellent laptop replacements, and I have really come around to using the device as my everyday business computer. I turned in my old laptop and have been 100% on the Surface Pro since the second week I had it. I see similar behavior in the other users.

The Surface devices are a small part of the puzzle, but critical in my mind. These devices push people towards the full Microsoft offering which is becoming more and more heavily focused on their Cloud Platforms; Microsoft Office 365 and Azure. Moreover they are learning how to commercialize “service offerings” around what used to be simply licensed products. So while the end of their cash cow businesses was easy to spot and kept me from investing in MSFT, they have (unexpectedly) found a way to monetize those licenses as service offerings.

After maintaining a "market perform" rating on Microsoft (MSFT) for the past three years, one analyst has finally changed his tune and upgraded the stock to "outperform."

On Tuesday's episode of "Fast Money," FBR senior analyst Daniel Ives explained why he thinks now is the best time to own Microsoft.
"You finally feel like there's a pilot on the plane after 10 years of pain," he said, reflecting his belief in CEO Satya Nadella's vision. Part of that vision, according to Ives, centers on Microsoft's Office 365 and cloud strategies. "Everything we see in cloud really signifies a turnaround," he said. "We could view a $4 billion to $5 billion revenue stream."
Nadella's mobile strategy, including the decision to offer free Windows on mobile devices smaller than nine inches, could be another positive catalyst, Ives said. "What he's starting to do on mobile, and the turnaround, we could see an incremental 40 cents to annual earnings, and that gets us incrementally positive on the name," he said. Ives' boldest call focused on Microsoft's future in the handset market. "I think they could go from 2 percent market share to 10 percent. … Nokia is the X variable," he said.

Microsoft was the second-best performer in the Dow Jones Industrial Average on Tuesday, helped along by FBR Capital's upped rating and price target.