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

By Lee Jackson Updated Jan 11, 9:46PM EST · Published Jun 28, 8:10AM EDT

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

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.

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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.

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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.

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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.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.