Defense Department JEDI Cloud Project Potentially Huge for These Top Tech Stocks

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We have written many times on the seemingly nonstop growth of the cloud for data, computing, storage, streaming and more, and from the looks of things that growth isn’t slowing any time soon. In fact, the government, specifically the U.S. Department of Defense, is gearing up for a huge cloud project of its own, and the 10-year contract could run as much as $10 billion.

A new Deutsche Bank research report notes that the Defense Department project, which is named JEDI, is not only a huge build-out for the government, but it could lead to other agencies pursuing cloud infrastructure.

The report said this:

This award could act as a major cloud demand trigger for other US federal government agencies and establish the winner as a dominant player in this vertical. While the media has suggested that a final JEDI contract award could come in September 2018, this seems aggressive (the issuance of the final request for proposal was just delayed) and we would not be surprised if a decision was pushed into early first half of 2019.

Two major cloud players look poised to get the lion’s share of this contract, and Deutsche Bank feels that the Defense Department will use a multi-vendor approach.

Amazon

This absolute leader in online retail and dominant player in cloud storage business remains the top pick on Wall Street. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers.

The company serves developers and enterprises through Amazon Web Services, which provides computing, storage, database, analytics, applications and deployment services that enable virtually various businesses. AWS is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market.

Deutsche Bank thinks the company’s dominance almost assures it gets a large part of the contract. The report noted this:

Based on conversations with customers and partners serving various US government agencies, we conclude that the unanimous view is that AWS is best-positioned to win the lion’s share of the JEDI contract, given its leadership position in the federal government vertical and the apparent success of its big CIA cloud contract.

The 52-week trading range for the shares is $931.75 to $1,763.10, and the Wall Street consensus target price is $1,837.65. The shares closed trading on Wednesday at $1,660.51.

Microsoft

This top old-school technology stock has posted all-time highs this year and has a massive $138.6 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) continues to find an increasing amount of support from portfolio managers, who have added the software giant to their holdings at an increasingly faster pace all of this year and last. The cloud was big in the recent earnings report, which was outstanding.

Many Wall Street analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is its cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service, while others maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users.

Microsoft is also expected to be a winner, and the analyst noted this:

Microsoft and its dedicated Azure Government segment appear to be the main challenger to AWS, with industry checks barely mentioning IBM and Google and countering that Oracle has little traction as a provider of modern cloud infrastructure services to the US federal government.

Microsoft shareholders currently receive a 1.7% dividend. The posted consensus price objective is $112.33. The shares closed Wednesday at $97.54, in a 52-week trading range of $68.02 to $102.69.

It’s apparently the proverbial “rich-get-richer” scenario, or so it appears, as Amazon and Microsoft already dominate the cloud and look poised to get the biggest parts of this massive government contract.