Microsoft (MSFT - Free Report) recently entered into a strategic alliance with Singapore-based Online-to-offline (“O2O”) mobile platform provider Grab. The tech giant’s robust artificial intelligence (“AI”) and machine learning (“ML”) capabilities will enable the ride hailer to offer enhanced mobility services.
Per the five-year agreement, the companies will work on projects involving big data, AI and connected car technologies. Moreover, Microsoft will invest in Grab, which will select Azure as its preferred cloud partner. Consequently, Grab is anticipated to benefit from Azure’s Internet of Things (IoT) and Edge capabilities.
Apart from transport, Grab’s other on-demand services include delivery of food and package, andfinancial services comprising mobile payment solutions.
Notably, Grab has a strong presence across Southeast Asiaand its digital wallet, GrabPay, is a notable player in the region.
This partnership is expected to fortify Azure’s expansion in Southeast Asia. We believe Microsoft’s vision of augmenting various sectors, from payment services to transport systems, with robust methodologies is enabling its partners to digitize their respective processes.
In the words of Peggy Johnson, executive vice president at Microsoft, "Our partnership with Grab opens up new opportunities to innovate in both a rapidly evolving industry and growth region."
We believe the company’s push into Azure cloud, AI and other emerging technologies will aid it to enhance market reach against the likes of Amazon (AMZN - Free Report) , Alphabet’s Google Cloud, among others.
Focal Points of the Partnership
Grab will explore Microsoft Azure's data analytics and fraud detection services to better predict and prevent fraudulent transactions on Grab's platform.
In a bid to ensure safe and budget friendly transport, package andfood delivery, and other services, the companies attempt to devise new techniques.
For instance the companies will work on seamless mobile facial recognition solution to replace ID check-ins, leveraging analytics to predict fraudulent operations, offering users an AI chatbot to enhance engagement, among other domains.
Other areas include, developing Grab's "recommendation engine", image recognition, mapping capabilities by capitalizing on Microsoft's ML tech.
Per the deal, Microsoft Outlook users can avail Grab's on-demand transport options. Microsoft's Kaizala mobile app for group communication will enhance Grab's Customer Service teams.
Share Price Performance
Shares of Microsoft have returned 31.2% year to date, substantially outperforming the industry’s rally of 24.7%. The stock has also fared better than the S&P 500 index’s rise of 9.4%.
This outperformance can primarily be attributed to its rapidly expanding efforts in AI and Internet of Things (“IoT”) based developments. Focus on enhancing Azure, Dynamics 365 and LinkedIn on a dynamic basis continues to remain a key catalyst.
Azure Cloud Platform Gaining Traction
In a recent report, Gartner stated that the public cloud services market is expected to grow from $153.5 billion in 2017 to $186.4 billion in 2018. Given the widespread adoption of cloud, Microsoft’s initiatives to capitalize on this growing sector seem apt.
The adoption of Microsoft’s Azure has been robust as evident from its strong customer base. Azure has already been selected by the likes of Volkswagen, Walmart , Royal Dutch Shell PLC, to name a few.
Notably, in the fourth quarter of fiscal 2018 Azure revenues soared 85% at constant currency on a year-over-year basis. Data center expansion continues with Azure now in 54 regions globally.
Notably, per latest Synergy Research Group article, spending on cloud infrastructure services in the second quarter of fiscal 2018 witnessed a year-over-year increase of 50%. Per the study, Microsoft’s cloud services only trail Amazon Web Services (“AWS”).
The new partnership adds to Microsoft’s growing clout, consequently driving its top-line growth.
Moreover, per a report by MarketsandMarkets, the AI market is anticipated to hit $190.61 billion by 2025 at a CAGR of approximately 36.6% from $16.06 billion in 2017. The report reinforces Microsoft’s intention to tap into the immense potential of AI.
Microsoft is putting its best foot forward to gain a competitive edge in the AI market at different levels, from strengthening automated systems to virtual assistants to enhancing asset optimization processes and simplifying them for customers and partners.
The company’s focus on strengthening presence in the AI market is also evident from its acquisitions of Lobe, Bonsai, Semantic Machines, Maluuba, SwiftKet, to mention a few. These AI-based startups are expected to increase the prospects for the tech giant, going forward.
Zacks Rank & Other Key Picks
Microsoft sports a Zacks Rank #1 (Strong Buy).
Some other top-ranked stocks in the same industry are Salesforce.com (CRM - Free Report) and SS&C Technologies Holdings, Inc. (SSNC - Free Report) , both flaunting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The projected long-term earnings growth rate for Salesforce and SS&C are 25% and 13.5%, respectively.
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