Part of the deal involves AT&T moving its wireless 5G network to run on Microsoft’s cloud platform in a bid to increase productivity and cut costs. The cloud migration will begin with the software that connects AT&T customers and IoT devices to the internet.
The other part of the deal involves Microsoft acquiring AT&T’s Network Cloud platform technology. The acquisition is expected to help Microsoft grow its Azure for Operators offering that targets telecom carriers.
Through Azure for Operators, Microsoft aims to enable telecom companies around the world to deliver reliable, secure, and cost-effective 5G services to both consumers and enterprises. (See Microsoft stock chart on TipRanks).
“Through our collaboration with AT&T, Microsoft will expand its telecom portfolio to support operators with a carrier-grade cloud that provides seamless experiences across Microsoft’s cloud and the operator’s network,” said Jason Zander, Microsoft Azure’s Executive Vice President.
The companies did not disclose the financial details of the deal. But AT&T cited GSMA figures that show global operators’ mobile network capital expenditure for the 2021-2025 period will be $900 billion. It further noted that about 80% of the expenditure will relate to 5G networks, much of which could run on cloud platforms. (See AT&T stock chart on TipRanks).
Redburn Partners analyst Steve Malcolm recently initiated coverage on AT&T with a Sell rating and a price target of $23. Malcolm’s price target suggests 20.08% downside potential.
“John Stankey’s reset of AT&T’s strategy and the dividend is breathtaking and welcome…However, this merely reduces risk for AT&T and does not in itself make the stock attractive,” commented Malcolm.
Consensus among analysts is a Hold based on 6 Buys, 6 Holds, and 3 Sells. The average AT&T price target of $31.46 implies 9.31% upside potential to current levels.