Thereare several angles you can take if you want to add a few cloud computing stocks to your portfolio. But if you want to bet on the leaders in the business, you should start with Amazon.com, Microsoft, and Alphabet.
Research firm Gartner predicts that the public cloud services market will be worth $383.3 billion by 2020, a massive opportunity that makes it crystal clear why these three key players are in the middle of a fierce battle for dominance. There are plenty of smaller players in this segment, all offering varying types of services, but let’s focus on the giants and how they plan to compete in this space.
% of Public Cloud Market
Data source: Yahoo Finance and Business Insider.
Don’t feel bad if you’re not exactly sure what cloud computing is. The term can actually refer to several different types of cloud services, including software as a service (SaaS), platform as a service (PaaS), infrastructure as a service (IaaS).
Microsoft’s Office 365 is one of the best examples of SaaS, while PaaS includes things like Google’s App Engine tools, which allow developers to build their own products and services. Meanwhile, IaaS involves things like networking features, virtual machines, andactual data storage — which Amazon, Microsoft, and Google all offer.
In this article, we’ll use the general “cloud computing” term to refer to a combination of all of these services, because each of the big three players offers SaaS, PaaS, and IaaS.
Amazon Web Services (AWS) is the clear leader right now with 40% of the public cloud computing market, according to Synergy Research Group.So investors accustomed to thinking about it as an e-commerce play should look closer. Sure, sales from the company’s retail platform in North America accounted for nearly 59% of Amazon’s revenue in the second quarter, but AWS generates far more of the profit. Amazon’s North American e-commerce sales brought in $436 million in operating income in the second quarter of this year, while AWS hit $916 million.
AWS is the real breadwinner because of its hefty 25% margins and its stellar growth. Its revenue jumped by 70% in 2015 and 55% in 2016.
Amazon isn’t a pure play in the segment, but it’s already proved that it can do both e-commerce and cloud computing very well — and at the same time. AWS revenuegrew by 58% year over year in Q2, and it’s likely to continue growing as a key contributor to the company’s top and bottom lines.
Image source: Getty Images.
Microsoft may be known for its software prowess, but its Azure Cloud Services unit currently holds the No. 2 spot in public cloud computing with an 11% market share.
The cloud computing segment brought in $18.9 billion in fiscal 2017 — a 56% year-over-year increase — and it’s on track to hit $20 billion annually by the end of fiscal 2018.It’s worth pointing out that Microsoft lumps all of its cloud computing revenue (including Office 365 software) into one segment, which pushes its cloud revenue higher than Amazon’s.
Image source: Getty Images.
Azure is important to Microsoft because it helps lock the company’s enterprise customers into its other services like Windows Server. Without Azure, Microsoft could easily lose Windows Server clients and forfeit significant yearly sales. For example, Microsoft said in its fiscal fourth quarter that server products and cloud services revenue jumped by 15%, which was “driven by Azure revenue growth.”
Microsoft CEO Satya Nadella said back in 2014 that the company would take a “mobile first, cloud first” approach, and so far it has implemented the last part of that strategy quite well. Microsoft may trail Amazon, but it’s still far ahead of its next closest competitor, Alphabet. And the company’s long enterprise experience should help keep it solidly in that No. 2 spot.
It’s a bit unusual to have occasion to describe Alphabet as anything other than a leader, but in cloud computing, it’s still a relatively small player. Google started selling its first cloud services back in 2008, and currently, holds about 6% of the market.
But just because it’s the smallest player on this list doesn’t mean it should be counted out. In typical Google fashion, it’s building out its cloud presence by offering software like its TensorFlow machine learning algorithms for free to developers.
TensorFlow is the magic behind the Google Photos function that automatically categorizes images for you, for example, and its machine learning makes the results of your Google searches more relevant. The company started giving TensorFlow away to developers a couple of years ago as part of its efforts to woo them to the company’s cloud platform.
A recentMIT Technology Review article said that TensorFlow is “becoming the clear leader among programmers building new things with machine learning” and that “the software’s popularity is helping Google fight for a bigger share” of the cloud market because it’s easier to use on Google’s cloud than AWS or Azure.
That strategy may seem like an odd way to build a cloud business, but TensorFlow has made Amazon and Microsoft nervous enough that they’ve teamed up to release a competing machine learning software product.
The head of Google Cloud, Urs Holzle, has said that he wants revenue from Google Cloud services to overtake the company’s advertising sales by 2020. Considering that the tech giant earns nearly 90%of its top line from advertising, that timeline sounds optimistic, to say the least.
Google doesn’t break out its cloud platform revenue (nor any other segment’s sales, for that matter) but that doesn’t mean investors should overlook the potential for Alphabet here. It became a key cloud services player in a short period of time, and now offers important software that developers find very useful. And Microsoft and Amazon appear to be a little worried about Google Cloud’s rapid rise, which by itself should make it clear that it’s shaping up to be a formidable player in the space.
The cloud computing sector is like any other when it comes to investing: You need to have a long-term perspective when buying shares in any of these companies. None of these tech giants are cloud computing pure plays, which means that many other factors — like Amazon’s retail sales, Google’s advertising dollars, and Microsoft’s software sales — will affect their share prices.
But investors should keep in mind that we’re not that far into our cloud computing journey, and the gains these companies could make from these technologies the coming years could be far greater. So be patient, consider the other businesses these companies are in when building your investment thesis, and then sit back and wait for this market to mature.
How to Invest in Cloud Computing — The Motley Fool
- Microsoft may be all-in on cloud computing, but Azure ... - May 8th, 2019
- What is cloud computing? - Definition from WhatIs.com - March 4th, 2019
- Cloud - Wikipedia - February 19th, 2019
- Cloud computing: A complete guide | IBM - February 7th, 2019
- FusionCloud Full-Stack Private Cloud - Huawei Enterprise - February 4th, 2019
- What is cloud computing? | IBM - January 24th, 2019
- What Is Cloud Computing? | The Basics of Digital Outsourcing - January 22nd, 2019
- Cloud Computing - Yahoo - January 13th, 2019
- Best Sellers in Cloud Computing - amazon.com - January 2nd, 2019
- Cloud Computing Explained by Common Craft (VIDEO) - January 2nd, 2019
- Cloud Computing Trends: 2017 State of the Cloud Survey - December 25th, 2018
- Cloud Computing Overview - tutorialspoint.com - December 25th, 2018
- 15 Top Cloud Computing Service Provider Companies - December 25th, 2018
- Cloud computing: Hardware & Software Security: Online ... - December 23rd, 2018
- Cloud Solutions from Cisco - Cisco - December 23rd, 2018
- Cloud Computing | The MIT Press - December 23rd, 2018
- Learn Cloud Computing Tutorial - javatpoint - December 23rd, 2018
- Standards - IEEE Cloud Computing - December 23rd, 2018
- Benefits of cloud computing | IBM Cloud - November 10th, 2018
- Cloud Computing Trends: 2018 State of the Cloud Survey - November 10th, 2018
- What is cloud computing? - LinkedIn - November 5th, 2018
- What is cloud computing? | TechRadar - September 25th, 2018
- Cloud Computing 2nd Edition: 2018: Mr. Ray Rafaels ... - September 23rd, 2018
- Cloud Computing - Articles & Whitepapers | Oracle Technology ... - September 23rd, 2018
- Cloud Computing: Theory and Practice: Dan C. Marinescu ... - September 23rd, 2018
- Programming Lesson Plan: Program Your Partner - September 5th, 2018
- Cloud Computing | Definition of Cloud Computing by Merriam ... - July 26th, 2018
- Cloud computing information, news and tips ... - April 30th, 2018
- Cloud computing - A simple introduction - Explain that Stuff - March 15th, 2018
- Doug H. - Boston Cloud Computing Meetup (Boston, MA) | Meetup - December 16th, 2017
- Cloud computing at Ifes, IFs, and hospitals | RNP - December 16th, 2017
- Cisco and Google Find Mutual Interest in Cloud Computing ... - October 28th, 2017
- What is cloud computing? Everything you need to know now ... - September 19th, 2017
- How The Automotive Industry Is Leveraging Cloud Computing - CXOToday.com - September 7th, 2017
- Huawei ups its bet on cloud computing with broader support for Microsoft apps - GeekWire - September 7th, 2017
- Cloud computing to drive Billabong's omnichannel experience - Chain Store Age - September 6th, 2017
- Cloud Computing Testbed Chameleon Renewed for Second Phase - HPCwire - September 6th, 2017
- The Software Alliance Advances Discussion on India's Cloud Computing Policy - ETAuto.com - September 6th, 2017
- Assessing Alibaba's Cloud Computing Opportunity - Market Realist - Market Realist - September 2nd, 2017
- 3 No-Brainer Stocks to Buy in Cloud Computing - Motley Fool - September 1st, 2017
- Telecom ponders future amid surging cloud computing popularity - TechTarget (blog) - September 1st, 2017
- Heads in the cloud: banks inch closer to cloud take-up - Risk.net (subscription) - August 31st, 2017
- Walmart Taps Nvidia for Massive Cloud to Take on Amazon - Fortune - August 31st, 2017
- Guest Commentary: Cloud computing tackles emerging cyber threats - Security Systems News - August 31st, 2017
- It's Only the Early Innings for Cloud Computing - Morningstar.com - August 29th, 2017
- What are the key benefits of cloud computing? - Information Age - August 29th, 2017
- VMworld 2017: Everything you need to know about VMware's hybrid cloud strategy - ZDNet - August 29th, 2017
- Saudi Telecom Company creates cloud computing giant - ComputerWeekly.com - August 29th, 2017
- Now with VMware and Pivotal, the Cloud Native Computing Foundation is becoming the hub of enterprise tech - GeekWire - August 29th, 2017
- Cloud Computing | HHS.gov - August 27th, 2017
- Oppo, Vivo plan to move cloud storage to India - Economic Times - August 27th, 2017
- Top 2 aspects of cloud computing you need to consi - Accountingweb.com (blog) - August 27th, 2017
- Biz Cloud Computing - Four States Homepage - August 27th, 2017
- Marketo decides to go all-in on cloud computing, and picks Google as its home - GeekWire - August 27th, 2017
- Cloud Computing Confirmed for Travers | TDN | Thoroughbred Daily ... - Thoroughbred Daily News - August 27th, 2017
- Why 2017 Is The Year To Understand Cloud Computing - Nasdaq - August 23rd, 2017
- Microsoft acquires cloud computing firm Cycle Computing to boost ... - The News Minute - August 23rd, 2017
- The Benefits of Multi-Cloud Computing Architectures for MSPs - MSPmentor - August 23rd, 2017
- VMware shares to surge more than 20% because the Amazon cloud threat is overblown: Analyst - CNBC - August 23rd, 2017
- Goldman Sachs just poured $45 million into a company picking up Amazon's slack in the cloud - Yahoo Finance - August 23rd, 2017
- Cloud Computing confirmed for Travers Stakes 2017 - Horse Racing ... - Horse Racing Nation - August 23rd, 2017
- Cloud computing in focus at e-Commerce forum - Oman Tribune - August 21st, 2017
- World's Largest Open Source Cloud Computing Summit to be Hosted in Sydney - Business Wire (press release) - August 21st, 2017
- AT&T, GE and Oracle offer juiciest cloud salaries, new data reveals - Cloud Tech - August 21st, 2017
- Cycle Computing will make Microsoft Azure more appealing to more enterprises - TechRepublic - August 21st, 2017
- Manage containers in cloud computing to prevent sprawl, cut costs - TechTarget - August 19th, 2017
- Business continuity is the ultimate killer application for cloud - ZDNet - August 19th, 2017
- Thailand urged to opt for cloud computing - The Nation - August 19th, 2017
- Cyberattacks Rain Down on Cloud Computing Infrastructure ... - Bloomberg BNA - August 19th, 2017
- Brown to decide Monday if Cloud Computing runs in the Travers - Horse Racing Nation - August 19th, 2017
- Cloud computing reversal: From 'go away' to 'I can't miss out' - InfoWorld - August 18th, 2017
- Alibaba Stock: Why Cloud Computing Could Be Equivalent to AWS - BNL Finance (press release) (registration) (blog) - August 18th, 2017
- Microsoft Acquires A Cloud Technology Company From Right Under Google And Amazon's Noses - Inc.com - August 18th, 2017
- Alibaba's cloud computing revenue almost doubles - SiliconANGLE News (blog) - August 18th, 2017
- Big Data and Cloud Computing Software, Platforms, and Infrastructure 2017 - 2022 - Markets Insider - August 18th, 2017
- Microsoft acquires cloud-computing orchestration vendor Cycle Computing - ZDNet - August 16th, 2017
- Cloud computing decision guide: Breaking down 7 top solutions for healthcare - Healthcare IT News - August 16th, 2017
- Amazon: Earnings Are Not The Holy Grail - Seeking Alpha - August 16th, 2017
- Notes: Cloud Computing still in running for Travers - Albany Times Union - August 14th, 2017
- Assessing the key reasons behind a multi-cloud strategy - Cloud Tech - August 14th, 2017