Tech stocks have been beaten to a pulp in recent months, with e-commerce, hardware, and social media stocks not that far behind, observes Todd Shaver, growth stock expert and editor of Bull Market Report.
With the nefarious brew of high inflation, rate hikes, and an impending recession simmering since the beginning of the year, there are few safe havens for investors, but we believe the cloud is one of the safest.
Cloud computing services provide storage, networking, security, and more, with pay as you go pricing, while setting up similar on-premise hardware-based infrastructure costs over $100,000 upfront, with additional energy, data, and other costs.
These services are also easily scalable, without any downtime or additional capital investments, making them very attractive, especially during downturns and recessions. These services have made cloud computing accessible to all, from small businesses to billion dollar enterprises, with prices starting at just $20 to $50 per month.
They provide a wide range of add-on services for a multitude of use cases, ranging from analytics and blockchain, to gaming and machine learning. From government agencies to high traffic websites, cloud computing services remain indispensable.
Amazon (AMZN)
AWS — Amazon Web Services — is currently the largest player in the segment with a 32% market share, and remains the main contributor to Amazon’s bottom line with $18 billion in revenues during its most recent quarter, up 40% YoY. AWS is running at an annualized revenue run rate of $74 billion.
They produced a huge operating profit of $6.5 billion in the quarter. The company has invested nearly $25 billion in AWS infrastructure during the last year alone. And as you know, Andy Jassey, the man who made AWS happen, is now CEO of the entire company.
Microsoft (MSFT)
Azure remains the most underrated among the lot, with $7.2 billion in revenues during the second quarter. It is all set to overtake Windows and the Microsoft Office Franchise in terms of revenues.
The cloud services business remains the fastest growing segment for the company, with longer term contracts from large enterprise customers coming in ahead of expectations. The company’s $20 billion acquisition of Nuance is expected to further improve its value proposition in this market.
Alphabet (GOOGL)
Google Cloud remains in the third position with a 10% market share, but is closing in on its peers fast. The segment continues to grow by leaps and bounds, posting 44% YoY growth in revenues during its most recent quarter, at $6 billion. The company continues to see strong deal volume across industries and regions, driven by its large and growing channel partner program.
Summary
Cloud computing is far from the commodity business that many industry observers once pegged it to be, as it revolves around power, connectivity, and availability. The three giants in this segment have built substantial networks, and insurmountable competitive fortresses in the form of value-added services, innovative use cases, and mega acquisitions.
We can’t predict a winner as the cloud market continues to grow from here, but wherever it goes, by owning these three companies, you will have way more than half of the business. By the way, can you imagine if Amazon were to spin off AWS as a separate company? OMG. How about Microsoft spinning off Azure? OMG.
Overall, the demand for cloud-based computing services continues to expand, and has been the key growth driver for these three tech behemoths in recent quarters. Google Cloud, Microsoft’s Azure, and Amazon Web Services, all represent substantial cost savings for enterprise users, and are critical for the long-term digital transformation, and business intelligence trends that are currently sweeping across global organizations.
