MSFT Stock Will Remain the Last JEDI

Despite Amazon’s rebellion, Microsoft stock is the better pick

Typically, you should never rely on any one metric or event to base your investment decision. Such an approach is the most myopic of tactics imaginable. Yet software and technology giant Microsoft (NASDAQ:MSFT) presents a compelling exception to this rule. Since the beginning of November, the MSFT stock price is up over 4%, mostly on a single catalyst.

Microsoft Stock Valuation Assumes Free Cash Flow Perfection
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Of course, I’m referring to the company’s earth-shattering coup d’état in securing the coveted Joint Enterprise Defense Infrastructure (JEDI) deal. Proposed by the U.S. Department of Defense, this entails a 10-year contract worth $10 billion to provide cloud-computing services. It’s a huge boost for Microsoft stock because, as IP.com’s Laura Hoy notes, observers assumed Amazon (NASDAQ:AMZN) would win.

Moreover, it opens synergistic opportunities that could drive the MSFT stock price well into the future. And for that reason, Amazon’s team is understandably furious. As Hoy wrote:

Many pointed to Trump’s ongoing personal vendetta with Amazon and its CEO Jeff Bezos as reason for the deal. But regardless, the DOD’s decision to go with MSFT will provide the firm with several tailwinds over the next decade. Not only does the contract open the door for further government deals, but it sends a message to enterprise customers who are looking for secure cloud providers.

Naturally, Amazon isn’t taking this sitting down. On Friday of last week, the e-commerce giant filed suit in the U.S. Court of Federal Claims, principally alleging bias. On the surface, they have a convincing case. After all, President Donald Trump has had a war of words with Jeff Bezos.

Still, I wouldn’t necessarily worry about Microsoft stock. Ultimately, the DoD made the right call.

Politics Is Just Noise for MSFT Stock

Years ago, I overhead a conversation between two of my acquaintances: one was a software engineer and the other was a former U.S. Navy service member. To the bemusement of the software engineer, the sailor stated that Navy ships run on Windows.

I remember the retort as if it was said yesterday: “I can’t believe the security of our nation relies on the Windows operating system.”

Even I thought it was hilarious. While I have generally positive associations with MSFT stock, one negative stands out for me: the blue screen of death. Over the years, the company has dramatically improved Windows’ reliability. Still, I don’t think I’ve ever had a problem with Apple’s (NASDAQ:AAPL) Mac.

But it might surprise you that a) the U.S. military does largely run on Windows and b) they do this for a reason. Because new technologies tend to be buggy, the military waits a long time before upgrading. Strategically, this makes sense from a military application: you don’t want to render a naval strike force vulnerable because the carrier is upgrading its systems to Windows 10. Or even worse, trying to contact customer service while missiles are flying in the air.

Therefore, the broader Microsoft architecture is a familiar system to the Defense Department. Further, the DoD spends big money to deliberately dumb down their Microsoft-based systems. In other words, keeping everything in the family is both practical and cost-effective. That’s a huge lift for Microsoft stock.

Another point to consider is why the military used Windows in the first place. We’re a global force, and logically, the military requires a digital global footprint. As it turns out, Microsoft has data centers everywhere, which makes them an effective cloud-computing provider.

Microsoft a Better Choice for the Military

Aside from the familiarity angle – which is huge – Microsoft’s approach fits better with the DoD’s various missions. Primarily, I’m referencing superior security protocols.

As you know, Microsoft’s operating system dominates the PC market. Naturally, this makes them vulnerable to cyberattacks, a constant criticism against the Windows OS. But at the same time, the company is battle-hardened due to their front-line presence.

Obviously, cybersecurity is a major tenet of modern defense protocols, which favors Microsoft stock. Moreover, Microsoft architecture has been proven in the literal battlefield, so a trusting relationship already exists. I believe it would be difficult for Amazon to break up this bond.

Plus, with Microsoft’s global data centers, this helps ensure almost 100% upkeep 24/7/365. That’s absolutely critical with lives on the line, and this dynamic also favors MSFT stock.

That said, I’m sympathetic toward Amazon. Surely, President Trump has had it in for Bezos and his company. But when it comes to the substance of the deal, Microsoft is simply the better choice.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/11/msft-stock-will-remain-the-last-jedi/.

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