US Backs Microsoft’s $10B JEDI Cloud Award; Wedbush Says JEDI ‘Game Changer’

The US Defense Department announced on Friday that it has completed a comprehensive review of its $10 billion JEDI cloud computing contract proposals and determined that Microsoft’s offering continues to represent the best value to the government.

However, the US Defense Department (DoD) said that “contract performance” by Microsoft (MSFT) will not start immediately due to the preliminary injunction order issued by the Court of Federal Claims on February 13, after Amazon lost out and filed a lawsuit to challenge the contract process.

“DoD is eager to begin delivering this capability to our men and women in uniform,” the DoD said in a statement.

Back in October, Microsoft won the JEDI contract, but Amazon (AMZN) has since been arguing that the contract process entailed “numerous material evaluation errors” adding that the e-commerce giant had “offered a lower cost by several tens of millions of dollars”.

In a blog post, Amazon on Friday criticized the DoD’s decision saying that the “re-evaluation [is] nothing more than an attempt to validate a flawed, biased, and politically corrupted decision”.

“We will not back down in the face of targeted political cronyism or illusory corrective actions, and we will continue pursuing a fair, objective, and impartial review,” Amazon said.

The JEDI cloud contract is a firm-fixed-price, indefinite-delivery/indefinite-quantity contract that will make a full range of cloud computing services available to the DoD.

Amazon dropped 2.2% at the close on Friday, while Micosoft was down 1.4%. Shares in Microsoft have gained about 36% so far this year as the tech giant continues to benefit from increased demand for remote services and cloud solutions during the coronavirus pandemic. (See Microsoft stock analysis on TipRanks).

Wedbush analyst Daniel Ives reiterated a Buy rating on the stock with a Street-high $260 price target (21% upside potential), saying that the contract is a “game changer”.

“This/JEDI will have a ripple effect for the company’s cloud business for years to come and speaks to a new chapter of Redmond winning in the cloud vs. Amazon in our opinion on the next $1 trillion of cloud spending expected to happen over the next decade,” Ives wrote in a note to investors. “With roughly 33% of workloads in the cloud today and poised to hit 55% by 2022, we believe Nadella & Co. are in the catbirds seat to get more of these complex workloads (e.g., AI, machine learning, etc.) as more enterprises take the leap to a hybrid cloud architecture over the coming years.”

“While Amazon will continue to fight this issue in ‘JEDIgate’ and possibly drag out the inevitable start of JEDI we ultimately believe this is a paradigm changer for Microsoft who will remain the lone winner in this hard fought technology/K Street battle that took place over the last year and remains a stinging defeat for Amazon and Bezos,” Ives added

Overall, Wall Street analysts have a bullish outlook on the stock. The Strong Buy consensus scores 26 Buy ratings versus 3 Hold ratings. The average price target of $229.52 still implies 7.1% upside potential over the coming year.

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