Pentagon deal to boost Microsoft's position in cloud computing: Analysts

Pentagon deal to boost Microsoft's position in cloud computing: Analysts

A Microsoft logo is seen next to a cloud in Los Angeles
FILE PHOTO: A Microsoft logo is seen next to a cloud in Los Angeles, California, U.S. on June 14, 2016. REUTERS/Lucy Nicholson/File Photo

REUTERS: Inc's firm grip on the cloud computing market could be threatened by Microsoft Corp's multi-billion dollar contract with the Pentagon, Wall Street analysts said on Monday (Oct 28).

Last week, Microsoft won the Pentagon contract termed Joint Enterprise Defense Infrastructure Cloud, or JEDI, that will be worth up to US$10 billion over a period of 10 years, beating out favourite Amazon's AWS.

Shares of Microsoft rose as much as 3.4 per cent to a record high of US$145.67 on Monday.

"Bottom line, the contract is a significant win for Microsoft and vaults Azure forward in the cloud platform wars," JP Morgan analyst Mark Murphy said.

Amazon's Amazon Web Services currently holds about 32 per cent of the cloud computing market, while Microsoft's Azure has about 18 per cent, according to research firm Canalys.

While AWS contributes nearly 13per cent to Amazon's total net sales, Azure accounts for about 33 per cent of Microsoft's revenue and are both a major cash cow for the companies.

Friday's decision came after months of controversy and protest over the process for awarding the deal and even drawing the attention of President Donald Trump, who has publicly taken swipes at Amazon, long considered the frontrunner.

Analysts at brokerage firm Compass Point said the deal was a "significant victory" for Microsoft over AWS and added that Amazon could challenge the decision.

"We expect a degree of handwringing among Congressional Democrats given the political and practical dimensions of this issue, but our sense is that lawmakers are unlikely to wade too deeply into these waters," Compass Point's Marshall Senk said.

Brokerages Mizuho and Independent Research raised their price target on the Microsoft stock at the prospect of the company getting a boost from the contract.

"In the end, the fact that Azure was chosen as the sole provider for this important project is a testament to just how far it has come over the past couple of years," said Mizuho analyst Gregg Moskowitz, who raised his price target by US$8 to US$160.

Wedbush analyst Daniel Ives noted that the deal helps Microsoft gain a bigger chunk of an estimated US$1 trillion of next decade cloud business and US$100 billion of US government business.

Source: Reuters