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Analyst Blog

Shares of Microsoft Corporation (MSFT - Free Report) have been steadily scaling higher grounds over the last one year. The stock generated a return of 9.30% compared with the S&P 500 index's 7.01%.

The upside in the stock price of Microsoft was primarily driven by strong cloud growth. The continuing enterprise strength, benefits from the Office 365 subscription model, strong growth prospects of Azure and promising new products will continue to generate top-line growth in 2016.

Meanwhile, Microsoft recently announced that it has made its largest purchase of wind energy to date to power its data centers in the U.S. The company will utilize power from three wind farms. While two farms of Allianz Risk Transfer AG will provide 178 megawatts of wind power, another farm owned by Black Hills Corporation will supply Microsoft with 59 megawatts of clean energy.

Why this Move?

Cloud computing is gradually gaining traction among the masses, given the convenience and security features it provides to the end user. As per an IDC report, global public cloud services’ spending is estimated to reach $195 billion by 2020 at a CAGR of 20.4%.

To operate a cloud infrastructure, data centers are required that in turn require a steady and unwavering power supply to function properly. Given the growing demand for cloud, demand for datacenters and power is likely to increase in the future. To meet the power requirements many major cloud players are turning to renewable sources of energy and Microsoft is no different.

Microsoft intends to achieve a 44% dependency on renewable energy for its power requirements by the end of 2016. Similarly, Amazon.com, Inc.’s (AMZN - Free Report) Amazon Web Services has plans to achieve a 40% dependency on renewable energy by the end of 2016. Alphabet Inc. (GOOGL - Free Report) owned Google is also working on similar lines and currently uses renewable energy for 35% of its datacenters.

We note that dependence on renewable resources to cut down on operating costs is just another way to be more competitive and profitable and Microsoft’s decision to do so augurs well for the company in the long run.

Zacks Rank & Key Picks

At present, Microsoft has a Zacks Rank #3 (Hold).

A better-ranked stock in the broader technology space is Konami Holdings Corporation (KNMCY - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Notably, the consensus estimate for Konami Holdings’ current year improved to $1.59 from $1.39 over the last 30 days.

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