Microsoft shares will thrive this year because of strong growth in its Azure cloud computing business, according to J.P. Morgan.

The firm raised its rating on the company's shares to overweight from neutral, predicting Microsoft will report profit above expectations this year.

On Thursday, the software company announced a better-than-expected earnings result for its fiscal third quarter. Microsoft's forecast for sales in the fourth quarter were also above the average Wall Street forecast.

"We think Microsoft will dominate in the Enterprise, and it stands to benefit from a broad and powerful lineup of Cloud solutions," analyst Mark Murphy wrote in a note to clients Friday. "While the PC cycle and Windows dynamic are still highly relevant, we believe Microsoft is pushing forward with a successful cloud strategy."

Murphy raised his December 2018 price target to $110 from $94 for Microsoft shares. The new target is 17 percent above Thursday's closing price. He estimates the company will report earnings per share of $3.82 in its fiscal 2018 versus the $3.77 Wall Street consensus.

Microsoft's Azure cloud business grew 89 percent in the third quarter compared with the same period last year, and its cloud "premium services" segment grew more than 100 percent for its 15th quarter in a row.

"Azure remains in high-growth territory," the analyst wrote. "Azure use cases are broadening in scope and gaining traction; for example Azure ML [machine learning] is used by tens of thousands of customers, 300,000 developers use Azure Bot service."

Microsoft shares rose 1.7 percent Friday.