There was a time when one could hide behind a tree, or out in the dark. Those were good times. Of course, when one represents the nation that usually has the technological advantage, that does change such a perception. That said, there was a skill to moving swiftly, and silently through a wilderness environment. I was taught by sergeants who served in Vietnam, and one fellow who went back as far as the Chosin Reservoir. I was sergeant to many still serving today, some now sergeants on their own accord.
I have seen swift, silent and deadly turn into slow, steady and invincible. I have seen the jeep turn into the Humvee and then into the up-armor Humvee. I have watched the M-60A1 main battle tank turn into the M-1 Abrams, and I have seen my all-time favorite... The UH-1 Iroquois (The Huey) turn into the many iterations of the UH-60 Blackhawk. Time moves on. Just for the record, inserting from a Huey... for those few seconds one stands on the rail... is in my opinion, the single most fun thing about infantry service. Under peaceful conditions.
Military technology is no different. While it used to be a badge of honor to use old school equipment ( I was proud to use canteens over camelbacks or an old H-harness over modern Molle gear.) until it puts one at a disadvantage. Hence, the evolution of the cloud is happening across the economy at light speed. So it must be with the military application of such high tech. This is one area where we can not afford to fall behind peer adversaries.
Death of the JEDI
Amazon (AMZN) CEO Andy Jassy received perhaps the greatest first day gift that he might have imagined. The Pentagon announced that the $10 billion cloud computing contract known as the Joint Enterprise Defense Infrastructure or JEDI that had been awarded to Microsoft (MSFT) back in October 2019 would be scrapped. Amazon had contested the decision in court that (then) President Donald Trump had exerted pressure on the Pentagon to opt for Microsoft over Amazon due to Amazon being run by (then) CEO Jeff Bezos who also owns the Washington Post which had not been kind to the former president.
From the Pentagon's perspective, work on the contract had been tied up in litigation, all while the demands of the program were evolving. John Sherman, the Pentagon acting chief information officer stated simply, "JEDI was the right approach at the time." (but) "We're in a different place now."
The Department of Defense now moves toward a rebranded Joint Warfighter Cloud Capability (JWCC) program that at first appeared to be open to bidding just from the two frontrunners, Amazon and Microsoft as these are considered to be the only two companies deemed capable of meeting the new program's requirements.
I did report early this morning that this new program was basically a jump ball between Amazon and Microsoft, but it appears to be broader than that. The Pentagon is apparently open to the idea of a multi-vendor approach. The DOD intends to seek proposals from a limited number of sources. Other vendors beyond the two obvious names would be considered if they can show that they can meet the contract's terms. The new contract, by the way, will be scheduled to run no more than five years.
Qualified bidders will be identified by this October, and the new contract will be awarded probably in the second quarter of 2022. This puts the likes of Alphabet (GOOGL) , Oracle (ORCL) , and IBM (IBM) back in the game. Are Amazon and Microsoft sure to be finalists? I would think so. I also think that as a means of providing better cybersecurity, the Pentagon may come to decide to go with a program where its work is divided across several of these cloud capable providers. Don't be surprised if we get down to three or even four contractors, and at that point, there is no real winning or losing, but varying degrees of winning.
In other words, do not count anyone out.
Long-time readers, and readers who have been with me since this morning, know well that I stand long both Amazon and Microsoft. I updated target and panic prices for both of those names in this morning's Market Recon column. They are both trading at all-time highs. So is Alphabet. The two longer shots in the group are going to be IBM and Oracle.
Of those two long-time underperformers... Oracle is trading toward the top end of its range, but IBM... is different. IBM is coming off of consecutive down days as news broke that Jim Whitehurt (former CEO of Red Hat) would be leaving the company. The firm is still driving toward the cloud, and toward the expected spin-off of Kyndryl. Stock trades at 12 times forward earnings, and currently pays an annual dividend of $6.56 for a yield of 4.7%.
If there is a bargain in the bunch, it is IBM.