U.S. Markets close in 1 hr 36 mins

Why Microsoft Just Picked a Side in the Walmart-Amazon War

Radek Gralak
On Tuesday, Walmart (WMT) revealed that it has entered a five-year deal with Microsoft (MSFT) which will allow the retail giant to use the tech firm's cloud solutions, such as Azure and 365. For Walmart, the benefits are clear, but why would Microsoft want to pick a side in the big box retailer's ongoing war with Amazon?

On Tuesday, Walmart WMT revealed that it has entered a five-year deal with Microsoft MSFT which will allow the retail giant to use the tech firm’s cloud solutions, such as Azure and 365. The agreement will also see the two companies take part in new projects centered on machine learning, artificial, intelligence, and data platforms.

For Walmart, the deal is an obvious move to fight back against Amazon AMZN, the company’s biggest competition in the retail space. The partnership will significantly bolster Walmart’s online operations as the retailer embarks on a critical digital transformation to combat Amazon’s e-commerce success.

Use of Microsoft’s cloud infrastructure will also make shopping faster for Walmart’s customers and help to streamline the retail giant’s supply chain through data integration.

Significance for Microsoft

While the partnership is a major breakthrough for Walmart for obvious reasons, it is equally essential for Microsoft and the tech company’s growth moving forward. For starters, Amazon is also Microsoft’s main rival—but in the cloud computing space.

Amazon’s cloud computing business, Amazon Web Services, has a $20 billion annual revenue run rate and is the current market leader, with Microsoft actually trailing behind it in second place. Microsoft CEO Satya Nadella didn’t shy away at all from that rivalry, stating that its “absolutely core to this” new partnership with Walmart, in an interview with The Wall Street Journal.

Partnering with Walmart will expand use of Microsoft’s cloud service into the retail industry, and the company could potentially push even more retailers to use its tech capabilities in the future. Amazon has already made deals with retailers like Kohl’s KSS, so teaming up with Walmart was nearly a move Microsoft had to make.

In addition, this isn’t the first initiative Microsoft has taken to counter Amazon. Microsoft has recently been developing technology that will take away cashiers and checkout lines from stores, a clear response to Amazon’s already existent automated grocery shop Amazon Go.

The partnership with Walmart also wasn’t the only deal that Microsoft has made to spread the use of its cloud services. On Monday, the company announced another major partnership, this time with GE GE, which will integrate Microsoft’s cloud features into GE’s Predix portfolio.

Bottom line

Microsoft is on a clear mission to defeat Amazon and broaden its cloud business. The company is taking steps to accomplish those goals by strategically entering partnerships and digitally transforming high-valued companies and industry leaders.

Microsoft stock has seen a huge rise in recent years, which can be partly attributed to cloud-based growth. In this year alone the stock has risen 45%, and the stock even traded on Tuesday at a record high of $106.50 per share. 

Microsoft is set to report earnings on July 19, and these results will be a key sign as to whether the company can compete with Amazon and evolve into the cloud-computing leader moving forward.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
General Electric Company (GE) : Free Stock Analysis Report
 
Walmart Inc. (WMT) : Free Stock Analysis Report
 
Kohl's Corporation (KSS) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research