Microsoft Corp. (NASDAQ: MSFT) just won a coveted $10 billion, 10-year Department of Defense contract. But there’s an even bigger catalyst on the horizon for Microsoft’s cloud network.
Of course, this contract is a huge win for Microsoft’s Azure cloud over rival Amazon.com Inc. (NASDAQ: AMZN). It elevates Microsoft’s server to greater dominance in the cloud war.
5G is anticipated to be about 100 times faster than 4G. And this means the volume of data exchanged will be higher than ever before.
5G allows for a swifter exchange of information, but the world also needs a reliable place to put all of it.
AT&T Inc. (NYSE: T) expects to have a 5G network nationwide in 2020. And Microsoft announced this year that it would partner with AT&T to develop solutions around AI and 5G technology. This partnership with one of the largest 5G carriers in the United States will further mobilize its cloud computing technology to a booming market.
It’s a massive boon for Microsoft’s bottom line.
Revenue from Azure grew an average of 73% year over year, per quarter for fiscal 2019. Azure saw revenue growth of 63% in the latest report for Q1 2020. And now, the faster speeds of 5G give the Azure cloud better access to the mobile market, estimated to reach $66 billion by 2023.
So Microsoft’s cloud has a lot going for it right now. In addition to the DoD victory, Microsoft will continue to see growth from its AT&T partnership. But there is yet a bigger revolution 5G will unlock for MSFT stock…
This Could Push Microsoft to Lead the Cloud War
According to Statista, 98% of cars will be connected to the Internet in 2020. That number will change to 100% by 2025. And Microsoft is going to see huge growth from this.
In fact, Microsoft has an entire connected vehicle platform powered by Azure.
The company will pursue AI-powered advanced driver assistance systems (ADAS) such as adaptive cruise control, emergency breaking, cameras, apps, and autopilot as they grow more commonplace.
Right now, Microsoft’s Azure cloud is already serving Mapbox and Baidu, both leaders in the self-driving car space. They use Azure for different storage and operational purposes.
Microsoft’s plan is to enable a fleet of “potentially millions of vehicles distributed around the world” to give users “infotainment, entertainment, productivity, driver safety, and driver assistance experiences” as they drive.
The company envisions a symbiotic relationship between smartphones, cars, and various apps that could potentially support the driving experience.
It has put together an ecosystem of partners to create this experience: an operating system from LG Electronics, an autonomous driving platform with sensors powered by Teraki and maps powered by TomTom, and smart diagnostics from DSA.
This isn’t something tech companies are pulling out of thin air. McKinsey did a study as far as six years back, in 2013, that reported customers wanting more connectivity focused on “active safety and ease of use.” And today, that’s taking shape.
Tesla Inc. (NASDAQ: TSLA) has long boasted its ambitions to provide drivers with an all-in-one experience – in both traditional and driverless vehicles. Now, Microsoft is stepping up as a provider of this kind of technology in answer to actual demand.
The 5G revolution will make this all possible.
Plus, Microsoft might be a $1 trillion company, but it’s still one of the best buys on the market today…
Why Microsoft Is Really a Buy Right Now
Azure’s success in other markets showcases its dominance and makes a strong case for adoption in the auto industry.
It currently holds 15.5% of the public cloud market share, according to Gartner, second behind Amazon Web Services’ 47.8% as of August 2019. But this gap is closing with the new DoD contract win and now connected cars.
On top of that, the company’s cloud computing technology is already set to dominate cloud gaming as Microsoft partners with its bitterest rival, Sony Corp. (NASDAQ: SNY), to develop cloud gaming solutions. The cloud gaming industry is set to grow from $1 billion to $8 billion in worth by 2025 – 800% growth.
Right now, MSFT has a 3.8 Money Morning Stock VQScore. The VQScore is proprietary system that ranks stocks from 1 to 4.9. The higher the score, the more imminently the stock is likely to jump in price.
A 3.8 is close enough in the “Buy Zone” to get in on MSFT, especially given what’s coming in 2020.
In its last earnings report of fiscal 2019, Microsoft reported net income growth of 49%, from $12.4 billion to $13.2 billion, for Q4 year over year. That’s incredible growth for a huge company like Microsoft. It affirms that this company has the pulse on a new and fast-growing market.
You can pick up a share of MSFT for $144.71 today. And you’re going to wish you did.
Analysts give it a high target of $170, which is a solid 17% growth target. But as it takes a bite out of a 5G market worth $4.2 billion in 2020, it’s likely to soar way higher.
— Mike Stenger
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Source: Money Morning