Microsoft rises 3% to six-week high, after striking a billion-dollar contract with the US army for AR headsets

US Army Female Soldiers
Female soldiers from the US Army’s 1st Brigade Combat Team, 101st Airborne Division training on a firing range in Fort Campbell, Kentucky on September 18, 2012.

Microsoft rose by as much as 2.5% to six-week highs on Thursday after the software company said it had signed a major contract with the US government to produce mixed-reality headsets for the army.

The contract, according to Reuters, could be worth up to $21.88 billion over 10 years.

Microsoft was up 2.32% to $241.16 as of 11:01 am ET, having risen to a session peak of $242.06 earlier in the day, its highest since mid-February.

Wedbush analyst Daniel Ives, who maintained his outperform rating on the stock, said the deal underscores how Microsoft can monetize its augmented reality capabilities and, ultimately, how the Seattle-based company could expand the use cases across the enterprise and consumer landscape.

Second, the contract further drills in the narrative that Microsoft is “tightening its grip” on deals within the Pentagon, especially on the heels of the company’s recent cloud Joint Enterprise Defense Infrastructure win, he said.

“We continue to see Microsoft gaining share from the likes of Amazon/AWS within the 202 area code and this is another deal that speaks to [Microsoft’s] broad tentacles of products across the Azure cloud ecosystem and AR front,” Ives said in a note.

“In a cloud arms race, MSFT right now has the momentum and is well-positioned to further build out its competitive moat over the next 12 to 18 months,” he said.

The US Army first announced the partnership in a blogpost on Wednesday detailing the contract in which the tech giant will adapt its existing HoloLens headset, known as the Integrated Visual Augmentation System (IVAS) for the prototype.

The IVAS will aggregate multiple technologies to help soldiers “fight, rehearse and train using a single platform,” the Army said in a statement.

“We appreciate the partnership with the US Army, and are thankful for their continued trust in transitioning IVAS from rapid prototyping to rapid fielding,” Microsoft said in a blog post on Wednesday. “We look forward to building on this successful partnership with the men and women of the US Army Close Combat Force.”

The company said it has been designing the specialized headset for two years. In 2018, Microsoft was awarded a $479 million contract to create prototypes of the devices.