Microsoft Tightening Tentacles Around Pentagon With $22B AR Headset Deal, Says Analyst

Microsoft Corporation’s MSFT $21.9 billion deal with the U.S. Army to build customized augmented reality headsets shows the company is tightening its hold over defense deals and gaining share over its rivals, as per Wedbush analyst Daniel Ives.

What Happened: Ives said in a note on Wednesday that the headset deal, which arrives on top of its recent historical cloud Joint Enterprise Defense Infrastructure Cloud win, is a pointer that the company is “tightening its grip” with the Department of Defense and Pentagon. 

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The analyst sees Microsoft gaining shares from companies such as Amazon.com, Inc AMZN and its cloud subsidiary Amazon Web Services.

Notably, Amazon has challenged Micorosft’s $10 billion JEDI contract legally.

“This is another deal that speaks to MSFT's broad tentacles of products across the Azure cloud ecosystem and AR front that enables Nadella & Co. to flex its muscles within the Beltway,” wrote Ives.

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Ives maintained his Outperform rating on Microsoft and has a price target of $231.85. 

Why It Matters: In excess of 120,000 of the headsets, based on Microsoft’s Holo Lens headset, would be delivered over a decade to the army, the Wall Street Journal reported Wednesday.

Microsoft reportedly said that the latest headsets will keep soldiers safer and make them more effective by enhancing situational awareness and providing them training opportunities.

The headsets will reportedly run software made by the Redmond, Washington-based tech giant, and will be supported by its Azure cloud-computing service.

In 2018, the Satya Nadella-led company won a $480 million contract to supply the army with 100,000 modified HoloLens headsets, noted the Journal.

The AR race is heating up. Tech rival Apple Inc AAPL is rumored to be working on an AR headset that features eye-tracking and Iris recognition.
See Also: Facebook Has Dedicated About 20% Of Its Workforce To VR/AR Efforts: Report

On Wednesday, it was reported that Snapchat parent Snap Inc SNAP is planning next-generation of smart glasses that allow users to AR effects.

Price Action: Microsoft shares closed nearly 1.7% higher at $235.77 on Wednesday and gained 0.75% in the after-hours trading.