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Microsoft-SAP Launch Major Attack Against Amazon in the Cloud

Microsoft Inc. (MSFT - Get Report) is upping the ante in its fight to beat Amazon.com Inc.'s (AMZN - Get Report) cloud business, which controls nearly 50% of the current cloud market.

The legacy tech giant announced late Monday that it would further its partnership with German enterprise software company SAP SE (SAP - Get Report) . As part of the deal, the companies will cross-promote each others' products internally, while encouraging joint customers to run SAP software on Microsoft Azure, its hybrid cloud computing service. Microsoft and SAP, which have been partnering for roughly 20 years, count Coca-Cola (K - Get Report) , Columbia Sportswear and Costco Wholesale Corp. (COST - Get Report) as mutual customers, according to Microsoft.

Spokespeople for SAP and Microsoft declined to disclose the financial terms of the deal.

The partnership could help increase Microsoft's growing share of the cloud computing market, while potentially slowing Amazon's lead in the space. Microsoft has been securing more tie-ups with cloud software providers to cross promote its services, in the hopes that it could attract joint customers to its platform, instead of rivals like Amazon, Alibaba (BABA - Get Report) or Alphabet Inc.'s (GOOGL - Get Report) Google. For example, Microsoft in 2016 announced a strategic cloud partnership with Adobe Systems Inc. (ADBE - Get Report) to become the preferred cloud platform for Adobe's Marketing Cloud, Creative Cloud and Document Cloud.

Amazon Web Services is still the top public cloud platform, capturing 44% of the $22.1 billion infrastructure-as-a-service (IaaS) market, according to Gartner. Microsoft, meanwhile, trails Amazon with only 7.1% of the IaaS market.

That doesn't mean Microsoft has become complacent in the ongoing cloud wars, however. TheStreet's co-founder Jim Cramer, who on Monday added Microsoft to his Actional Alerts PLUS charitable trust portfolio, noted that Microsoft has more data center regions around the globe than Amazon. This could help Microsoft gain market share both domestically and internationally, Cramer and the AAP team said.

Microsoft has 36 current cloud regions and another six planned for the future, according to Bernstein analyst Mark Moerdler. Amazon and Google currently have 16 cloud regions and 12 cloud regions, respectively.

"Microsoft is massively investing to build a world-wide Cloud datacenter footprint to support the move of organizations to the cloud," Moerdler said in a recent note. "We believe that Microsoft's vision is orders of magnitude larger than their current Azure footprint and massively larger than their commercial Cloud revenue."

Additionally, Piper Jaffray analyst Alex Zukin said Microsoft is landing more and more $100 million cloud contracts that put it on par with Amazon. Microsoft has several nine-figure deals "ready for prime time" that are "head to head" wins against Amazon Web Services, Zukin explained.

"We believe these wins came in the retail and financial services verticals with the commonality of these deals being that customers are looking 'to get rid of their data centers' and are looking to Azure over AWS as a result of competitive concerns," he added. "[The deals] show a flood of interest in Azure and supports the potential for sustained hyper-growth."

As Microsoft continues to secure bigger cloud deals, it could enable Azure to eclipse AWS in terms of revenue over the next five years, Zukin noted.

Amazon, for its part, continues to expand AWS' global footprint. Earlier this month, the company sold off parts of its public cloud business in China, while holding on to the intellectual property assets, seemingly to maintain a presence there. It also has plans to open new international cloud regions in Bahrain, France, Hong Kong and Sweden.

Shares of Microsoft were climbing 0.9% to $84.66 on Tuesday morning. The stock has climbed 36.2% so far this year versus the Nasdaq's gain of roughly 28% year to date.

Microsoft and Alphabet are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells MSFT or GOOGL? Learn more now.

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