Will Windows Phone 7 Make Microsoft the Next Cool Tech Stock?

Is Microsoft becoming cool?

Bill Gates isn't about to start wearing jeans and a black turtleneck (here's hoping), but the reception for the company's "Windows Phone 7" smart phone operating system suggests that Microsoft (MSFT) is capable of design breakthroughs. That will come as a surprise to the many denizens of Wall Street and Silicon Valley who consider Microsoft little more than a moribund public utility.

A research note issued Wednesday by Brent Thill at UBS highlights the buzz that the system has been receiving in the geek demimonde.

"WP7 reception among [the] mobile community has been strong," Thill writes. "Handset vendors our team spoke with at Mobile World Congress expressed optimism on WP7 while the enthusiast press has been embracing it; one notable outlet declared mobile is now a three-horse race between Apple (AAPL), Google (GOOG) and MSFT."

Yet Thill is not sufficiently excited himself to raise his target on Microsoft's share price. It remains $36, although that is well above the stock's recent levels and he still advocates buying it.

As inclined as he might be to expect more from the stock, he acknowledges that Microsoft's core businesses, Windows and Office software (the public utility stuff), remain so dominant that WP7 will have little impact on earnings. Still, he leaves open the possibility that, one day, "mobile could emerge as a significant new growth engine."

If you're a shareholder, that would be pretty cool.