IBM is buying cloud computing company Red Hat for $34 billion, its biggest acquisition ever, the company announced on Sunday.

The deal is a challenge to Amazon, Google, and Microsoft, which have dominated the cloud — another term for third-party data storage.

“The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” IBM Chief Executive Ginni Rometty said.

The deal values the company at $190 a share, a nearly 63 percent premium over where the stock traded on Friday, at $116.68.

The announcement comes as tech giants are betting that more companies and users will pay a subscription fee to store their data elsewhere, rather than buy expensive mainframes and hard drives — which had been IBM’s bread and butter.

It’s also a bet on the open-source software model, on which cloud computing typically operates. In that model, companies license out code and allow users to make changes.

Amazon Web Services is the leader in cloud technology by market cap. It announced in July revenue jumped 48.9 percent to $6.11 billion during the second quarter of 2018.

Competition is growing increasingly fierce for the cloud business, though.

In June, Microsoft paid $7.5 billion to acquire GitHub, a platform that attracts 28 million coders worldwide. The deal gave the software company a leg-up by increasing its clout with developers.

Red Hat, which was founded in 1993, was originally started as an alternative to Microsoft and allowed users to freely distribute its open-source code.
The deal is expected to close in the second half of 2019.