Amazon Files Lawsuit Against US DoD Over JEDI Contract

Amazon Files Lawsuit Against US DoD Over JEDI Contract
November 18, 2019


The cloud division of the online retailer, Inc. (Nasdaq: AMZN) has filed a lawsuit at the Court of Federal Claims against the US Department of Defense (Pentagon) on November 8th regarding the latter’s decision to bestow the $10 billion JEDI (Joint Enterprise Defense Infrastructure) contract, spread over 10 years, to Microsoft (MSFT). The contract is crucial for Amazon to retain its leadership position in the cloud computing space. The third-quarter earnings reported on October 24th reflected a slowdown in its cloud business (Amazon Web Services-AWS). The stock of Amazon closed at $1,739.49, down $15.11 or -0.86% from prior close.

Seattle, Washington-based Amazon announced that AWS would challenge the JEDI contract awarded to Microsoft. The JEDI contract, publicized in March 2018, is structured to update the Pentagon’s computing framework through a commercial technology enterprise. The JEDI contract was finally awarded to Microsoft on October 25th.

According to the government, the JEDI Cloud will offer “enterprise-level, commercial IaaS (infrastructure as a service) and PaaS (platform as a service) to the Department and any mission partners for all Department business and mission operations.”

According to AWS, the process of valuation was opaque and biased. AWS wants the defects to be rectified. In this regard, Amazon Web Services spokesman said, “AWS is uniquely experienced and qualified to provide the critical technology the U.S. military needs, and remains committed to supporting the DoD’s modernization efforts. We also believe it’s critical for our country that the government and its elected leaders administer procurements objectively and in a manner that is free from political influence. Numerous aspects of the JEDI evaluation process contained clear deficiencies, errors, and unmistakable bias- and it’s important that these matters be examined and rectified.”

The cloud computing space is dominated by Amazon Web Services with roughly 33% market share, while Microsoft stands second with a market share of 16%. Notably, US President Donald Trump has demanded a reappraisal of the contract offering process last summer when Mark Esper, Defense Secretary, took charge. At that time, many experts were anticipating Amazon to secure the contract. Following Trump’s criticism, the Pentagon temporarily suspended the contract on August 1st.

Trump is also not on good terms with Amazon CEO Jeff Bezos, who owns the Washington Post journal. The President also revealed that he had received numerous complaints from other enterprises regarding the bidding procedures. It can be remembered that IBM Corp (IBM) and Oracle Corp. (ORCL) were disqualified in the initial rounds of assessment. Google withdrew from the JEDI bidding in late 2018.

Amazon continues to face issues in its e-commerce business as well. Last month, Nike (NKE) stated that it would no longer sell its products through Amazon’s platform. The company also issued a weaker outlook for the fourth quarter. During the third quarter, Amazon Web Services (AWS) reported revenue of $8.995 billion, below analysts’ estimate of $9.10 billion. Annual growth declined to 35% in Q3, from 37% in the second quarter and 41% in the first quarter. Notably, Microsoft also reported a slowdown in its Azure cloud business.

The market was expecting Amazon to file a case against the award of the contract to Microsoft. Therefore, the stock is expected to remain range-bound with slight bearish bias.

Technically, the stock has closed below its 50-day moving average. The MACD indicator is almost flat and slightly below the zero level. Therefore, we can expect the stock to remain range-bound with bearish bias.

amzn - technical analysis - 18th Nov 2019


Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.


Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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