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Microsoft & Amazon Stay in JEDI Race, IBM & ORCL Shunned

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Microsoft (MSFT - Free Report) and Amazon (AMZN - Free Report) are reportedly the only remaining contenders to secure the Pentagon’s Joint Enterprise Defense Infrastructure (“JEDI”) cloud contract.

According to the sources, International Business Machines (IBM - Free Report) and Oracle (ORCL - Free Report) are no longer being considered for the deal for failing to meet the minimum criteria.

Notably, Alphabet’s (GOOGL - Free Report) Google had willingly opted out from bidding for the JEDI deal citing value and ethics concerns.

Government Programs Present Solid Growth Opportunity

The fiscal 2019 defense budget of $716 billion — the largest allotted to defense in U.S. history — is extremely lucrative. Out of the total tally, $686 billion is allotted to the Department of Defense (DoD) and $13.7 billion is proposed to be invested “in science and technology to further innovation.”

Per psmarketresearch data, the global government cloud services market is projected to witness a CAGR of 15.4% during 2018-2023. The potential is alluring for prominent cloud services providers.

The announcement of approximately $10 billion worth 10-year JEDI contract intensified competition between Amazon Web Services (AWS), Microsoft Azure, IBM Cloud and Oracle.

Concerns pertaining to President Trump’s anti-Amazon tweets or Oracle and IBM’s apprehension regarding the policies have been doing rounds since then. However, the Pentagon assured that the contract will be finalized in a fair and transparent manner.

Notably, AWS is authorized to host DoD’s Impact Level 6 workloads, which are touted to be Pentagon’s and U.S. military’s highest level of classified information. Further, Microsoft announced the availability of Azure Government Secret regions, which are enabled to support Level 6 workloads, from the first quarter of 2019.

Microsoft’s Expanding Defense Portfolio vs AWS Dominance

Zeroing in on either AWS or Azure isn’t going to be an easy decision.

Microsoft’s proactive stance on enhancing Azure’s government-related services with AI and robust edge capabilities poises it well to bag the deal.

In fact, Microsoft secured back-to-back deal wins from DoD in the recent past, which includes a five-year contract worth $1.76-billion to provide enterprise services for the Pentagon Defense Department, cloud Coast Guard and intelligence services.

Another worth $480 million involves the utilization of HoloLens by U.S. army soldiers to combat real-life challenging conditions.

The introduction of new Azure Data Box, Data Box Heavy and Data Box Edge to government customers, are a few instances highlighting Microsoft’s growing capabilities.

Further, Azure has already been selected by the likes of Alaska Department of Transportation, Duo+ based out of Netherlands, South African government unit Department of Science and Technology, to name a few.

However, it will be difficult for DoD to ignore AWS’ expertise and dominance in the cloud market.

Per a report from Synergy Research Group, AWS led the cloud market in fourth-quarter 2018 with 34% share, compared with Azure’s 15%.

In November, 2018, AWS rolled out its second isolated infrastructure region for government agencies and the organizations in highly regulated industries. The latest region called AWS GovCloud (US-East) Region is based in the eastern part of the United States. The first region named AWS GovCloud (US-West) was launched in 2011.

AWS has assisted governments and agencies alike with its high security and compliant cloud capabilities, including Government of Singapore, agencies like NASA, UK Ministry of Justice, to mention a few.

Notably, at present, AWS has 61 availability zones, while Microsoft has 54 Azure regions worldwide.

While Microsoft has a Zacks Rank #3 (Hold), Amazon carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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