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Microsoft Acquires Maluuba, Expands in IoT and AI Markets

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Microsoft Corporation’s (MSFT - Free Report) stock has been a prolific gainer since the appointment of Satya Nadella as its chief executive officer (CEO) in 2014. Notably, the company’s shares have surged 72.3% as compared with S&P 500 composite’s return of 24.9% and the Zacks Computer-Software industry’s gain of 35.8% in the last three years.

The strong upside has been driven by investments on data centers and strategic partnerships with the likes of Adobe (ADBE - Free Report) , which aided revenue growth of its cloud products – Azure and Office 365. Most significantly, Azure revenues have doubled during the period helping the company offset sluggish PC demand and lackluster mobile efforts.

Microsoft is now rapidly expanding its presence in the fast emerging Internet of Things (IoT) market. The company is gradually shifting its focus from being an operating system provider for automakers to run their in-car information and entertainment systems to being a platform provider based on its Azure cloud, Cortana and Office. (Read More: Microsoft Reportedly Gaining Traction in Auto IoT Space)

However, successful penetration in the IoT market is significantly dependent on a company’s ability to gain meaningful insight from the massive amount of data that IoT devices produce. In this regard, Artificial Intelligence (AI) techniques – machine learning, deep learning, reinforcement learning and natural language processing (NLP) – are of immense help in analyzing this big data.

Maluuba Buyout Boosts AI Presence

Microsoft’s focus on strengthening its presence in the AI market is evident from the recent acquisition of Montreal-based Maluuba. The AI startup is an expert in the field of deep learning and reinforcement learning for question-answering and decision-making systems.

Per Microsoft “Maluuba’s vision is to advance toward a more general artificial intelligence by creating literate machines that can think, reason and communicate like humans.” Further, the acquisition will boost Microsoft’s talent-base with the addition of Yoshua Beningo, a well-known expert in the AI field.

Notably, Microsoft acquired SwiftKet, an AI startup earlier in 2016 for $250 million. The company has also recently invested in the Element AI through its venture arm.

Microsoft Corporation Price and Consensus


Microsoft Corporation Price and Consensus | Microsoft Corporation Quote

Intensifying Competition

As per an IDC report, worldwide spending on artificial intelligence and cognitive systems is estimated to be over $47 billion by 2020, which is currently growing at a CAGR of 55.1%. The massive growth potential has attracted not only Microsoft but also the likes of International Business Machines (IBM - Free Report) and Alphabet (GOOGL - Free Report) .

We believe that IBM’s Watson and Alphabet’s DeepMind technologies are notable competitors to Microsoft’s initiatives in the AI market. However, integration of AI techniques within Cortana, Office 365 and Azure presents a significant competitive edge to Microsoft, in our view.

Microsoft currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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