• Between Microsoft's enterprise Azure package and Office 365, the company's products are "serving mission-critical functions" for customers, RBC said.
  • The firm initiated coverage of the tech giant Friday with an "outperform" rating and $160 price target, which represents a 15% premium from it close Thursday.
  • Watch Microsoft trade live .

Microsoft's thriving cloud business could send its stock on a 15% rally over the next year, RBC Capital Markets said.

"With the unmatched depth and breadth of its technology portfolio, we believe the company has multiple levers to grow revenue, margins, and its customer base over the next several years," the firm's analyst wrote in a note to clients on Friday.

RBC initiated coverage of Microsoft on Friday with an "outperform rating" and $160 price target, which represents a 15% premium from where shares closed Thursday.

Microsoft's cloud business includes its enterprise Azure solutions for managing corporate systems and applications, as well as its Office 365 package featuring well-known programs like Microsoft Word and Excel. The company competes with Amazon's cloud offering Amazon Web Services in the enterprise space.

Between these two offerings, Microsoft is poised to become a strategic partner for companies transitioning over to the cloud, as its products continue to serve "mission-critical functions," RBC said.

"In a world increasingly moving to the cloud, but still encumbered by legacy investments that sit elsewhere and still drive value today, Microsoft is uniquely positioned to take an increasingly large percentage of corporate IT budgets in a hybrid world," the firm added.

Microsoft's commercial cloud business generated $38 billion of its $125 billion in revenue for fiscal 2019, CEO Satya Nadella said on the company's fourth-quarter earnings call. RBC expects Microsoft's Azure business to grow more than 55% in fiscal 2020.

Shares of Microsoft were up more than 37.5% through Thursday's close.

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