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Microsoft (MSFT) Ups Ante in Cloud With Oracle Partnership

Zacks Equity Research

Microsoft MSFT recently entered into a cloud “interoperability” partnership with Oracle ORCL. Microsoft and Oracle introduced new cloud capabilities to allow enterprises capitalize on the interconnected cloud platforms. Financial terms of the deal have been kept under wraps.

Per the terms of the deal, Microsoft Azure will be integrated with Oracle Cloud to enable the joint enterprise customers to run their respective enterprise workloads seamlessly on their respective on-premises datacenters. The interconnect availability has recently been introduced in Azure US East and Ashburn (North America) regions.

We believe this is a noteworthy development in the enterprise cloud market. Collectively, with added capabilities Azure and Oracle Cloud platforms are likely to enhance competitive position against Amazon’s AMZN cloud computing platform Amazon Web Services (AWS) .

 


Microsoft’s innovative business strategies are infusing confidence in the stock. Notably, shares of the company have returned 26.8% in the past year, outperforming the industry’s rally of 22.7%.

Collaborative Approach in Cloud Favors Adoption

Through this partnership, Oracle will support its software which includes Oracle's Autonomous Database on Microsoft’s Azure services, comprising AI and analytics capabilities. Meanwhile, Microsoft will offer Oracle’s software to its Windows Azure customers. Further, Oracle will make its software available to Microsoft’s cloud computing customers.

For instance, customers can now run Oracle software and other applications including Oracle E-Business Suite on Azure. Further, Oracle applications are enabled to utilize Azure Active Directory.

This flexibility is expected to accelerate digital transformation of business database to public cloud platforms significantly. Overall, the partnership is aimed at providing direct and secure network connectivity, and fast data exchange between the two cloud platforms.

Furthermore, Microsoft’s (much stressed-on) single sign-in feature and automated access management will allow customers to seamlessly manage business workloads across Azure and Oracle Cloud.

Additionally, the availability of Oracle Database on Azure Oracle Linux and Windows Server is likely to be a tailwind, accentuating complementarities.

Notably, the joint enterprise customers including Albertsons Companies, Gap Inc., Halliburton, are a few companies already looking forward to benefit from the integration of the two prominent public cloud platforms.

Key Takeaways

With the transformed IT environment, both Microsoft and Oracle aim to assist companies with a democratized approach towards multiple-cloud model, which is a positive. In fact, per IBM's estimates, roughly 85% of the companies (which were surveyed) are utilizing multiple cloud computing platforms rather than depending on a single one.

Further, increasing spending on public cloud platforms and growing clout of digital transformation favor the growth prospects of the cloud partnership.

Per IDC data, global spending on public cloud services and related infrastructure is envisioned to hit $210 billion in 2019, up 23.8% over 2018.  Moreover, per a MarketsandMarkets report, digital transformation market is projected to hit $665 billion by 2023 at a CAGR of 18.1% from $290 billion in 2018.

On the heels of aforementioned collaborative expansion of cloud capabilities and market prospects, we believe Microsoft and Oracle are well poised to enhance their competencies in the public cloud vertical.

The deal also marks the second recent development, wherein Microsoft is joining hands with a rival in the market to boost business and facilitate innovation. The company’s partnership with Sony on cloud gaming is quintessential in this regard.

Zacks Rank & Another Stock to Consider

Microsoft currently carries a Zacks Rank #2 (Buy).

Another top-ranked stock worth considering in the same industry is Rosetta Stone Inc. RST, sporting Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Rosetta Stone is pegged at 12.5%.

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