Microsoft (MSFT -1.27%) confirmed rumors today that it would acquire Nuance Communications (NUAN) in an all-cash transaction valued at $19.7 billion, including assumption of the company's debt. The tech giant sees the deal as a way to boost its own ambitions in the realm of artificial intelligence (AI). Nuance is a pioneer in conversational AI, or technology that can understand and respond to voice commands. 

Nuance made its fortunes by developing software that's capable of understanding, responding to, and transcribing human speech. The tech is used by doctors' offices to keep patients' medical records accurate and up to date. The company's enterprise segment uses natural language understanding to provide voice mail transcription services, while also powering AI chatbots used in customer service.

A medical practioner using a tablet with swirling medical technology images.

Image source: Getty Images.

In recent years, Microsoft has been working to expand its industry-specific cloud offerings, and the acquisition of Nuance will boost the Microsoft Cloud for Healthcare, which was introduced late last year. Nuance has several industry-leading software-as-a-service offerings including Dragon Ambient eXperience, Dragon Medical One, and PowerScribe One for radiology reporting, which are all built on Microsoft Azure.

Microsoft noted that Nuance products and services are currently used by more than 55% of physicians and 75% of radiologists in the U.S., as well as 77% of hospitals. This helped drive Nuance's healthcare cloud revenue up 37% year over year in 2020.

In a post on Twitter (NYSE: TWTR) Monday, Microsoft CEO Satya Nadella said: "AI is technology's most important priority, and healthcare is its most urgent application. Together with [Nuance], we will put advanced AI solutions into the hands of professionals to drive better decision-making and create more meaningful connections." 

The purchase price represents a 23% premium to Nuance's closing price on Friday, and the deal is expected to close later this year. The acquisition will double Microsoft's total addressable market in healthcare to roughly $500 billion.