Bloomberg reports that Microsoft Corp (NASDAQ: MSFT) is working with UK-based semiconductor firm Arm Ltd. to make its own processors for server computers running on the company’s Azure cloud services, a move which will reduce reliance on Intel Corporation’s (INTC) chip technology. The report also says that the software giant is also looking into using another processor that would power its Surface line of personal computers.
“Because silicon is a foundational building block for technology, we’re continuing to invest in our own capabilities in areas like design, manufacturing and tools, while also fostering and strengthening partnerships with a wide range of chip providers,” said Microsoft spokesperson Frank Shaw in a statement.
Microsoft’s decision to develop its own chips is bad new for Intel, particularly after Apple (AAPL) introduced the first Mac products based on its own in-house ARM chip, known as M1, earlier this year.
Several chips stocks fell on M’soft’s news.
Shares of the Santa Clara, Calif.-based Intel dipped 6.30% to $47.46 on Friday, while shares of Micron (MU), Nvidia (NVDA) and Advanced Micro Devices (AMD) fell 1.11% to $71.46, 0.52% to $530.88, and 0.95% to $95.92, respectively.
Also on Friday, Morgan Stanley’s Keith Weiss named Microsoft a top pick in software for FY2021 and increased his price target on the name — last trading down 0.38% to $218.59 — by 11 points to $260.
The analyst, who has an overweight rating on the stock, wrote in a commentary that with “tough near-term comparisons already in consensus estimates, and the multiple having pulled back to 26 times [estimated] 2022 calendar year EPS”, MS sees “potential for outperformance in fiscal year 2021 [ending June 30]”.
“The durability of growth and margin expansion are underappreciated,” Weiss added.
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