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Reportedly, Microsoft Corp. (MSFT - Free Report) is set to roll out the fourth update to its Windows 10 operating system (OS). The upgraded version of the OS will be available from Oct 17, 2017 and will support augmented reality (AR) and virtual reality (VR) technologies.

Microsoft coined the term “mixed reality” for a combination of AR and VR.  It also unveiled plans of computer and VR headset producers to introduce hardware compatible with the features of the updated Windows 10. The company stated that vendors like Lenovo, HP Inc, Dell, Acer, Asus and Fujitsu have already notified about a new range of devices apt for the updates.

Notably, the update is being considered one the major steps to get “mixed reality” technologies into the mainstream. It will reduce time and simplify the process required for setting up VR headsets.

The company, which had previously released updates at a gap of almost three years, has cut down the span to six months. Growing security headwinds as well as intensifying competition from Linux-based systems has forced the company to increase its software update frequency.

The addition of AR/VR feature will improve attraction of Windows 10 that has been a major growth driver for the company. Moreover, the recent collaboration between Cortana and Amazon’s (AMZN - Free Report) Alexa will drive uptake of the OS.

Shares of Microsoft have gained 21% year to date, underperforming the industry’s 26.4% rally.



Microsoft’s Strategic Moves

We note strong Office 365 and Windows 10 adoption and impressive performance of its cloud platform – Azure – have helped the company report impressive result in the last quarter. Office 365 revenues surged 44% while Azure revenues increased 98% on a year-over-year basis.

Microsoft introduced Windows 10 S, which streamlined for simplicity, security and superior performance and tailored for the classroom. In partnership with Acer, ASUS, Dell, Fujitsu, HP, Samsung, and Toshiba, the company plans to introduce a new class of modern devices that enable affordable, powerful new scenarios from Windows ink to 3D.

Moreover, the partnership between Microsoft’s Cortana and Amazon’s Alexa is expected to be a key catalyst for the company’s growth in the AI market going forward. The deal allows an Amazon user to access Office 365 and other features of Windows 10 and similarly a Windows 10 user can use Alexa for ordering products from Amazon. We believe this will also provide Microsoft a competitive edge against the likes of Google (GOOGL - Free Report) and Apple (AAPL - Free Report) .

Further, with the recent announcement, the company is well placed to enjoy the growth momentum of the AR/VR market, which is anticipated to grow to $151.30 billion by 2022 per a recent report by MarketsandMarkets.

Apart from Azure, Windows 10 and Office 365, the company’s upcoming gaming console, Xbox One X, is another growth driver.Notably, the console set to release in November has already witnessed record pre-order rates. However, the lack of exclusive gaming titles and delay in the release of Microsoft’s Crackdown 3 might be a headwind.

Zacks Rank

Microsoft currently has a Zacks Rank #3 (Hold).

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

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