The Pentagon "awarded Microsoft Corporation a fixed price production agreement to manufacture the Integrated Visual Augmentation System (IVAS)," according to a statement from the Program Executive Office Soldier.
Microsoft will make 120,000 of the headsets, which are based on its HoloLens technology, CNBC and Reuters reported.
Shares of Microsoft rose in late trading following the reports. The stock ended the regular session up $3.92, or 1.7%, at $235.77.
The contract comes as Microsoft's win of a $10 billion deal to provide cloud services to the military remains in dispute. The award of the so-call Jedi contract came during the Trump administration in a win over Amazon.com's (AMZN) - Get Report AWS cloud services.
However, Amazon has repeatedly challenged the award, charging that former President Donald Trump interfered in the process because of Amazon CEO Jeff Bezos's ownership of the Washington Post newspaper, which routinely criticized the previous administration.
The headsets will be used to provide increased situational awareness for military personnel by using holograms overlying the actual visual environment, CNBC reported.
Maps, compasses and thermal images can be displayed using the devices, as well as aiming points for weapons carried by the personnel, according to the report.
Microsoft is reportedly in talks to acquire Discord, a gamer communications platform, for $10 billion.
TheStreet's Bret Kenwell recently outlined how Microsoft stock can reach new highs.
Microsoft and Amazon.com are holdings in Jim Cramer's Action Alerts PLUS member club.