Microsoft
MSFT
recently lost the coveted $10-billion Joint Enterprise Defense Infrastructure (“JEDI”) cloud deal that was awarded by the U.S. Department of Defense (“DoD”).
In a press release,
DoD stated that it was scrapping the JEDI contract as it “no longer meets its needs” owing to constant technological evolution, changing requirements as well as matured cloud conservancy.
DoD also announced that it was now planning to float a multi-cloud/multi-vendor Indefinite Delivery-Indefinite Quantity (IDIQ) contract — Joint Warfighter Cloud Capability (JWCC). DoD is looking to Microsoft as well as
Amazon
AMZN
for bids of the new contract as it finds these two cloud service providers (CSPs) as competent enough to cater to the organization’s requirements.
Microsoft Corporation Price and Consensus
Microsoft Corporation price-consensus-chart
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Microsoft Corporation Quote
Nonetheless, it did mention that is continuing with its research to find whether any other CSP can meet its needs and will hold discussions if it finds such a vendor.
Reacting to the development, Microsoft stated in a
blog post
that the company understands DoD’s rationale in scrapping the JEDI deal. The company further added that the Department was facing tough alternatives that included waging a lengthy litigation to upgrade its technological infrastructure or find a new way to obtain mission-critical technology.
Following the announcement, shares of Microsoft were flat and closed at $277.66. Amazon’s shares popped 4.7% and closed at $3,675.74 on Jul 6.
In the past year, shares of Microsoft have returned 30.5% compared with the
industry
’s growth of 30.7%.
JEDI Contract Has Been Mired in Controversy
JEDI cloud deal, since the time it was
floated
in 2018, has been courting controversies. Microsoft was first awarded the contract by Pentagon in October 2019. Since then, Amazon is striving to prevent Microsoft on working on the contract. The tech giant was granted a preliminary injunction order issued by the Court of Federal Claims on Feb 13, 2020, that does not allow the immediate commencement of the contract by Microsoft.
Amazon strongly opposed the deal again being awarded to Microsoft in September 2020 following re-assessment of the submitted bids. In a critical
blog post
, released on Sep 4, 2020, Amazon stated that the awarding of this mammoth deal sets a “dangerous precedent” and alleged political bias interfering in the procurement process.
Notably, Amazon along with Microsoft,
Oracle
ORCL
, and
Alphabet
’s
GOOGL
Google were some of the bidders for the JEDI deal. Alphabet had pulled out the race due to the clash with its corporate values. Eventually, Microsoft and Amazon were picked by Pentagon as the final two contenders, which was not well-recieved by Oracle.
Oracle filed several lawsuits but faced setbacks. In September 2020, Oracle faced another setback when the U.S. Court of Appeals rejected its contention that the JEDI federal procurement process was unfair. In July 2019, the company’s claims of JEDI cloud contract infringing on procurement laws was overturned by Federal Claims Court.
What Lies Ahead For Microsoft
Microsoft’s pivot to cloud computing is impressive. In a relatively-smaller time frame, the tech giant’s Azure cloud platform gained significant ground in the cloud space and trails only behind Amazon’s Amazon Web Services (“AWS”).
Per a Canalys report,
AWS’ global cloud services market share was 32%, while Azure’s share was 19% in first-quarter 2021.
Microsoft is striving to enhance government services portfolio.
According to Mordor Intelligence
, the global government cloud market is expected to witness a CAGR of 17.4% between 2021 and 2026 and reach $59.74 billion.
Higher government spend on cloud infrastructure services, provides business opportunities for CSPs like Microsoft.
Though loss of JEDI deal is a massive blow, Microsoft is likely to gain from the floating of the new JWCC contract by DoD. Microsoft has previously collaborated with DoD numerous times in varying degrees.
At present, Microsoft carries a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
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