Microsoft (MSFT) Fortifies Cloud Capacity Amid Rising Demand

Microsoft MSFT recently stated that it has expanded its network and data center capacity to meet the growing demand for cloud services amid the ongoing coronavirus pandemic.

Notably, the company’s Azure and Office cloud offerings have witnessed a surge in demand owing to the pandemic induced work from home trends. This has led to some customers experiencing slowdowns and outages.

In order to deal with the crisis, Microsoft initially focused on supporting critical sectors like healthcare and government infrastructure. Subsequently, the company tried to alter services to reduce traffic at peak times and shifted workloads to less busy regions. Moreover, the company slowed down or turned off nonessential features for its offering when the demand was at its peak.

Further, Microsoft CFO Amy Hood has pledged additional spending on data centers and equipment during the current quarter and expects the situation to be resolved by the end of June.

Amid increasing demand for cloud, Microsoft’s initiatives are expected to benefit its financial performance in the coming days. It is also likely to boost investors’ optimism in the stock.

Shares of Microsoft have returned 22.7% in the year-to-date period compared with the industry’s rally of 14.2%.

Microsoft Corporation Price and Consensus

Microsoft Corporation Price and Consensus

Microsoft Corporation price-consensus-chart | Microsoft Corporation Quote

Efforts to Strengthen Cloud Holds Promise

Microsoft’s efforts to bolster its cloud capacity bode well, courtesy of growing momentum for the Azure and Office Cloud offerings.

Recently, the company announced its decision to invest $1.5 billion to open its first data center in Italy. Prior to that, the tech giant had stated that it would pump in $1 billion in Poland to create a datacenter and expand its cloud services there.

Additionally, the company is constantly enhancing the Azure platform with new capabilities. Recently, Microsoft rolled out new features for the Azure Monitor which provides customers with deeper insights that helps them ensure that their workloads across Azure and hybrid environments are always running smoothly. The company also integrated the Azure Security Center with Windows Admin Center, which enables customers to transfer on-premises Windows servers from the Windows Admin Center directly to the Azure Security Center.

These updates are aiding the company acquire more customers. Notably, Microsoft Azure was recently adopted by SAS to host its analytics products on the Azure cloud platform. This will enable SAS customers to easily run their SAS workloads in the cloud to improve efficiency.

Moreover, The Coca Cola Company selected Microsoft’s Azure and Office cloud offerings to gain deeper insight into company data, which will allow it to enhance employee and customer experiences.

These client wins highlight the strength of Microsoft’s cloud portfolio and are expected to drive the company’s top-line growth over the long haul.

Competitive Scenario

Nevertheless, the cloud services market has heated up with key industry players like Amazon AMZN, Oracle ORCL, and IBM IBM all investing heavily to strengthen their respective cloud offerings.

Amazon’s cloud computing arm, Amazon Web Services (AWS) opened a new data centers in Italy. AWS has also announced plans to open new data centers in Brazil and India. Further, the company partnered with Slack to help joint customers manage their AWS resources in a more efficient manner.

AWS is also enhancing its offerings to make them more attractive to customers. The company recently announced major updates for its Amazon Macie offering, which enables customers to protect their sensitive data in AWS more efficiently. Notably, German football association –– Bundesliga –– selected AWS to enhance fan experience through real time game analysis.

Meanwhile, IBM recently acquired Spanugo to strengthen its public cloud offerings with cyber security capabilities. IBM’s growing clout in the cloud market can be ascertained by new deal wins. Recently, IBM public cloud platform has been adopted by Banco Sabadell and CaixaBank to drive digital transformation in the financial services industry.

In May, Oracle added the NVIDIA A100 Tensor Core GPU in Oracle cloud to deliver advance high-performance computing and machine learning capabilities to its customers. The company also launched the Cloud Cost Calculator, which calculates the cost of Oracle’s services and shows that Oracle is a more cost-efficient option when compared with competitors like AWS. This is likely to aid Oracle in expanding its client base.

Markedly, Zoom Video Communications and 8x8 have selected Oracle Cloud Infrastructure services to enhance video meeting solutions in a secure manner amid surge in user base due to the pandemic.

Nevertheless, the increasing popularity of Microsoft’s offerings is expected to aid it counter competition in this highly competitive space.

Per Canalys data, Microsoft Azure’s market share increased from 15% in first-quarter 2019 to 17% in first-quarter 2020. Microsoft, which currently carries a Zacks Rank #3 (Hold), trails only AWS, which has lost ground in the cloud services market. This is evident from AWS’ market share of 32% in first-quarter 2020, down from 33% in first-quarter 2019. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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