How Microsoft Could Reach $1 Trillion in Stock Market Value – Fortune

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The race to become the first public U.S. company valued at $1 trillion has largely been seen as Apple versus Google, with a recent surge by Amazon putting the e-commerce giant in the conversation as well. But on Monday, analysts at Morgan Stanley made the case that Microsoft has a good chance of reaching the $1 trillion mark.

With the company’s shares trading around $87 at Friday’s close, Microsoft had a stock market value of $680 billion. To reach $1 trillion, with some stock buybacks in the mix, its shares would have to hit almost $130. That’s plausible within the next three years, Morgan Stanley analysts Keith Weiss and Melissa Franchi wrote on Monday in a detailed report on Microsoft’s various lines of business called “Plotting the Path to $1 Trillion.”

“With Public Cloud adoption expected to grow from 21% of workloads today to 44% in the next three years, Microsoft looks poised to maintain a dominant position in a public cloud market we expect to more than double in size to (more than) $250 billion dollars,” the analysts wrote.

Microsoft shares jumped 5% to $91.90 in midday trading on Monday after the report came out. With a midday market cap of $707 billion, Microsoft almost exactly tied Google (goog) and trailed only Apple (aapl) at almost $849 billion and Amazon (amzn) at $733 billion.

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The software company run by Satya Nadella could impress investors enough to reach a $1 trillion value within three years by increasing revenue to $136 billion in its fiscal year 2020, up 41% from $97 billion last year, and operating income to $46 billion, up 58% from $29 billion, the Morgan Stanley analysts forecast. Nadella took over for CEO Steve Ballmer in 2014 and immediately prioritized the company’s cloud businesses, while getting out of distracting sidelines like making phones. It has worked so far, with Microsoft’s stock price nearly tripling since Nadella assumed the top job.

The key to reaching the needed level of additional growth would be Microsoft’s booming cloud business, both via its Office 365 subscription software and its Azure cloud platform for businesses, analysts Weiss and Franchi wrote. At the same time, shrinking sales of traditional Windows PCs and servers would need to stabilize.

That could happen as the number of corporate users of Office 365 could almost double from 105 million at the end of 2017 to 204 million at the end of 2020, the analysts said, with revenue from the popular software subscription package increasing from $10.7 billion to $25.6 billion. Revenue will compound even more quickly at Azure, growing from $3.9 billion last year to $21.6 billion in 2020. Altogether, total cloud revenue at Microsoft—which includes Office 365, Azure, search ad revenue and a few other items—should grow from $22.3 billion last year to $58.5 billion in 2020.

The analysts warned that they could also be underestimating Microsoft’s (msft) growth if its Xbox gaming business expands faster than expected, the company’s tax rate drops more than Microsoft forecast, or the company increases purchases of its own stock.

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