GameStop (NYSE:GME) is partnering with Microsoft (NASDAQ:MSFT) to bring the tech giant's cloud-based business solutions and applications to the video game retailer's back-office operations.

Thursday's announcement sent GameStop's shares soaring 44% higher -- helped along by a likely short squeeze as 136% the retailer's outstanding shares were sold short -- but the deal also suggests GameStop can better cope with the industry's transition to online and digital gaming.

Woman touching screen of laptop

Image source: Microsoft.

Tools to grow

According to GameStop, the agreement will allow it to standardize its back-end and in-store solutions on Microsoft's Dynamics 365 platform, giving its employees real-time data not only on inventory, but also customer preferences and purchase history regardless of whether those purchases were made online or in-store.

GameStop will also deploy Microsoft Surface laptops that will give employees mobility in meeting customer needs on the sales floor, with immediate access to all the data, pricing, and insights the system will make available.

The multi-year partnership will also have GameStop rolling out Microsoft 365 office productivity programs and the Microsoft Teams collaboration tools to all of the video game retailer's stores and employees.

GameStop is challenged by how to make its physical stores remain relevant in an increasingly digital gaming world. It has gotten a boost from the impending gaming console upgrade cycle, but once that plays out the video game retailer will need to have a fallback position as the gaming system shelf life grows longer.

The Microsoft system might help in that regard, but it's only a tool to implement a strategy, one which GameStop has yet to lay out. Investors haven't heard much beyond a vague plan from an activist investor to turn the retailer into a competitor of Amazon.com. These are all hopeful ideas, but nothing cohesive enough to warrant the massive run up in the stock.