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Dow Jones Futures: IBM Red Hat Deal Targets Cloud Computing Giants Amazon, Microsoft, Google

Dow Jones futures rose Sunday evening, along with S&P 500 futures and Nasdaq futures, after the stock market correction took another leg down last week. IBM (IBM) on Sunday announced a $33.4 billion takeover deal for Linux software maker Red Hat (RHT). It’s the tech giant’s largest-ever acquisition, aiming to better compete with cloud computing giants Amazon.com (AMZN) (via Amazon Web Services), Microsoft (MSFT) and Google parent Alphabet (GOOGL).




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IBM stock and Microsoft stock are both Dow Jones components. Amazon stock and Google stock are two of the four FANGs.

Dow Jones Futures Today

Dow Jones futures rose 0.3% vs. fair value. S&P 500 futures advanced 0.3%. Nasdaq 100 futures ran up 0.7%. Remember that Dow futures and other overnight action don’t necessarily translate in actual trading in the next regular session.

Right-wing candidate Jair Bolsonaro won Brazil’s presidential run-off election Sunday. Bolsonaro has pledged economic and fiscal reforms, but he’s also made positive comments about extrajudicial killings and praised past military dictatorships.

Meanwhile, early data suggest China’s economic growth slowed further in October.

The stock market correction intensified last week, with the Dow Jones, S&P 500 index and Nasdaq composite falling sharply, dashing hopes for a new rally.

IBM Red Hat Deal

In the IBM-Red Hat merger, IBM will pay $190 a share in cash. That’s a 63% premium to Red Hat stock’s closing price of 116.68. Red Hat’s Linux software runs many data centers used for cloud computing.

CEO Ginni Rometty called the IBM-Red Hat deal a “game changer” for the cloud market. IBM lags in cloud computing services to Amazon Web Services, Microsoft and Google, as well as Alibaba (BABA).

IBM revenue has fallen steadily over the last several years, as legacy hardware businesses shrink and the venerable tech company struggles to transition into newer, faster-growing fields. IBM’s share of the global cloud computing market dipped to 7% in Q3, according to Synergy, as AWS and other giants grab bigger pieces of the pie.

Rometty said “IBM will become the world’s #1 hybrid cloud provider.” Red Hat has made big gains in the fast-growing hybrid cloud. That’s when a company, including many financial firms, keep some data on its own servers and some data in a public cloud services.

However, IBM is paying a big premium for Red Hat. Red Hat missed on sales in its latest quarter and warned on revenue for the current quarter. Red Hat stock is down 34% from its June peak, hitting a 52-week low on Friday.

IBM stock hit a 30-month low on Friday. Its relative strength line, which tracks a stock’s performance vs. the S&P 500 index, is at a 22-year low.

Amazon Web Services, Microsoft, Google Cloud Computing Booms

Amazon Web Services revenue swelled 46% to $6.68 billion, though that was just below some analyst views. Amazon’s core e-commerce revenue grew just 11% last quarter, so AWS is likely to keep growing in importance.

A distant second to Amazon Web Services, Microsoft doesn’t detail its cloud revenue in a clear-cut manner. Its Azure cloud-computing business reported a 76% revenue gain but no dollar figures were given. Azure’s growth rate is starting to slow but remains very high and is definitely moving the needle for Microsoft. Microsoft revenue growth has accelerated for the last three quarters.

Google doesn’t break out cloud-computing revenue specifically. Google’s cloud revenue and hardware devices rose 29% to $4.6 billion in the third quarter.

Amazon stock and Google stock plunged Friday after both internet giants missed on overall revenue. Both are below their 200-day moving averages. Microsoft rose on its late Wednesday earnings report and fell only modestly for the week. Microsoft stock is below its 50-day line. But it’s one of several top Dow stocks with RS lines at or near record highs.

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