Cloud computing is expected to grow 17.5% this year to a global value of $214.3 billion, according to Gartner Inc.
It’s no wonder that tech giants like Microsoft Corp. (NASDAQ: MSFT) and International Business Machines Corp. (NYSE: IBM), which just beat its earnings estimates on the back of its cloud businesses, are working so furiously to grab their share.
As if a Star Wars–themed name were not good enough, some call the project the Department of Defense’s “War Cloud.”
While this underscores just how important the cloud will be, it also presents a great opportunity for a short-term play in anticipation of the contract award.
You see, one company is more likely to get the contract, and that could give a quick short-term boost to its stock as soon as next week.
Here’s why could computing is such a game changer – and which company we think has the best shot of landing this $10 billion windfall next week…
Why Cloud Computing Is Fueling Tech Growth
The cloud is really just another term for the Internet – because a company, or an individual, can access their data and applications from anywhere, and theoretically on their handheld device.
As technology becomes less centralized, companies can store their data offsite in reliable, backed-up servers operated by others. And they can lease time on powerful computers that would be too expensive for them to own and maintain themselves. This collective off-site power is simply referred to as “the cloud,” and companies that provide the hardware, software, and services are called cloud-computing companies.
These companies run the gamut from providing the broadband speed to connect computers to cloud networks, servers to store the data, and software-as-a-service (SaaS) companies that offer remote access to powerful programs.
That’s innovation! And it’s the current trend in technology.
Right now, Amazon’s Amazon Web Services and Microsoft’s Azure cloud divisions are leading the cloud computing sector.
It’s no wonder they’re both finalists to win the Pentagon’s coveted $10 billion contract.
But only one of them will get it…
Who Will Win the Pentagon’s JEDI Contract?
While we can’t know for certain what the outcome will be, it seems to us here at Money Morning that Amazon has the inside track.
We absolutely still like Microsoft as a long-term buy-and-hold play, in large part because its Azure cloud service is growing at an impressive clip.
However, if Amazon lands this lucrative contract, it could give the stock a significant boost right away.
There are many reasons why Amazon has the better shot to emerge with this contract in hand, starting with the location of its second headquarters, dubbed HQ2. Amazon is currently expanding right into the Pentagon’s backyard in Crystal City, a Virginia suburb of Washington, D.C. And the company also purchased property in the aptly named Pentagon City, a stone’s throw from the Pentagon itself.
The Pentagon also had a hand in defending Amazon from a lawsuit lodged by cloud rival Oracle Corp. (NASDAQ: ORCL), leaving Amazon and Microsoft as the last two bidders standing.
Plus, Amazon has an existing $600 million high-security cloud contract with the Central Intelligence Agency (CIA). This can be a big advantage in that the company has already been cleared to handle sensitive data from the government.
Both Microsoft and Amazon have great technology to get the job done, but installing Amazon here would speed up the process thanks to this existing relationship.
And it could mean a quick profit for traders.
There are many ways to make some real money off the naming of the winner, which is expected as soon as next week.
The easiest, of course, is to simply buy Amazon stock. However, this will be difficult for many investors due to the high price tag. Amazon stock traded above $2,000 per share earlier this week before pulling back with the market.
A lower-risk way to participate in the expected contract win would be with options. A call option, which gives the holder the right, but not the obligation, to buy a specific number of shares at a specific price, costs many times less than a full share of stock.
And since the initial investment is lower, the risk is also lower. But if Amazon does win and the stock does rally, the right call option could skyrocket in value.
Source: Money Morning