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Is the FedEx Deal Good for Microsoft Stock?


Sep. 4 2020, Updated 6:50 a.m. ET

Microsoft (NASDAQ:MSFT) and FedEx (NYSE:FDX) have entered a strategic partnership built around creating solutions to improve supply chain tracking. Overall, the partnership looks good for Microsoft stock. Notably, the agreement promises to increase the adoption of Microsoft’s Azure cloud services.

The aim is to combine FedEx’s global logistics network and the power of the Azure cloud to give customers more control and insight into the global movement of goods.

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Microsoft stock and the Azure cloud business

In the next few months, Microsoft and FedEx will launch a service called “FedEx Surround.” The service will let businesses track their inventory shipment in real-time. Azure cloud is trusted by 95% of the Fortune 500 companies. Microsoft stock jumped about 1.0% on Monday after the company announced the FedEx pact.

The FedEx deal promises to bring more cloud business to Microsoft, which should bode well for its t stock considering the massive revenue opportunity in the cloud market. According to Gartner estimates, the global cloud market is on course to generate over $266 billion in revenue in 2020. Meanwhile, the global cloud revenue could top $354 billion in 2022.

Currently, Microsoft trails Amazon (NASDAQ:AMZN) in the cloud market share. At the end of the first quarter, Amazon held a 32% share of the global cloud market. Microsoft ranks second with an 18% market share. Google (NASDAQ:GOOGL) is third with an 8.0% market share. So, partnerships like the one with FedEx could help Microsoft capture a bigger share of the cloud market.

The cloud business has become so important to Microsoft that investors have celebrated its cloud wins by bidding up the stock. For example, the stock has jumped more than 30% since the company landed the lucrative Pentagon JEDI cloud contract. However, Amazon has contested Microsoft’s JEDI contract win. The company claims that President Trump influenced the decision.

Azure revenue up 59% YoY

Microsoft recorded a 59% YoY (year-over-year) increase in Azure cloud revenue in the March quarter. That makes Azure the fastest-growing major cloud business. Amazon’s cloud revenue rose 32.5% and Google’s cloud revenue jumped 56% in the March quarter. Notably, Microsoft stock has risen about 8.0% since the company released its March quarter results showing strong growth in Azure cloud division.

At $183.63 per share at Tuesday’s closing, Microsoft stock has gained more 16.4% year-to-date. The stock still has a 5.4% upside potential to Wall Street’s average target price of $193.94.


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