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Microsoft Secures $1.76B Contract from Defense Department (revised)

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Microsoft Corp. (MSFT - Free Report) has recently clinched a five-year contract worth $1.76-billion from the U.S. Department of Defense (“DoD”), under which the company will provide enterprise servicesfor the Pentagon Defense Department, cloud Coast Guard and intelligence services.

The company’s contract is non-competitive, single-award, firm-fixed, and indefinite-delivery/indefinite-quantity. Per the deal, Microsoft will provide enterpriseservices that include availability of Azure in order to create new technologyand address ethical issues. It will also take care of existing workloads like security, and new workloads such as Internet of Things (IoT) and Edge artificial intelligence AI.

Notably, shares of Microsoft have returned 14.7% year over year, substantially outperforming the industry’s rally of 10.9%.

Microsoft’s Government Services: A Bright Spot

Microsoft’s recent contract comes in addition to its huge deal with the U.S. DoDin 2018. In October 2018, Microsoft Azure’s corporate vice president, Julia White, had announced that it is increasing support to various cloud services for government. The company is also bidding on a 10-year contract worth $10 billion to provide cloud-based infrastructure services for the Pentagon’s Joint Enterprise Defense Infrastructure (“JEDI”). This contract is scheduled to be awarded this spring.

The major takeaways of the announcement were the availability of Azure Government Secret regions from the first quarter of 2019, new Azure Data Box, Data Box Heavy and Data Box Edge to government customers, and expansion of Federal Risk and Authorization Management Program (FedRAMP) support for various U.S. Government agencies.

In November 2018, Microsoft secured another U.S. army contract, worth $480 million. Per the deal, the company’s robust augmented reality (AR) capabilities of HoloLens were anticipated to enable U.S. army soldiers in countering real-life challenging conditions.

Microsoft is optimistic regarding this association with the U.S. Department of Defense. Microsoft had previously expressed its support for the US military, stating Microsoft is “going to provide the U.S. military with access to the best technology … all the technology we create. Full stop.”

Additionally, the increasing spending on defense in the company’s budget bodes well. The fiscal 2019 defense budget of $717 billion — the largest budget allotted to defense in U.S. history — highlights the country’s efforts in maintaining a solid security cover, with rivals like China and Russia.

We believe Microsoft’s focus on improving its products with emerging technologies, including AR, VR or MR, IoT, AI, among others is helping the company explore new use cases for its offerings. These initiatives in turn assist in winning contracts, including the one under review, which are anticipated to boost top-line growth, going forward.

The aforementioned factors are expected to help the company compete against fellow industry giants, such as Amazon (AMZN - Free Report) and Alphabet (GOOGL - Free Report) .

Zacks Rank & a Stock to Consider

Microsoft carries a Zacks Rank #3 (Hold), at present.

Marvell Technology Group Ltd. (MRVL - Free Report) is a better-ranked in the broader technology sector, flaunting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The expected long-term earnings growth rate for Marvell is currently pegged at 9.4%.

(NOTE: This article is being re-issued to correct an error. The original version, published January 14, 2019, should no longer be relied upon.)

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