The COVID-19 pandemic has created havoc for most industries and countries around the globe. But one area that is benefiting from this new remote reality is cloud computing.
With millions of people sheltering in place, companies working remotely, and schools shuttered for an undetermined period of time, the world is turning to the internet to stay connected, learn, and collaborate. That is driving demand for cloud-based services, boosting the fortunes of cloud players.
Even without the pandemic, the cloud computing market was poised to see double-digit growth. According to Gartner, the market research firm, by 2022 the worldwide cloud computing market will hit $331.2 billion, up nearly 25% from $249.8 billion in 2020. That growth may turn out to be even bigger if working from home becomes the new normal.
There are a lot of strong players in the cloud computing market, but there are some standouts that are poised to do better than their rivals. They're not only enjoying strong growth now, but likely will well into the future. With stocks taking a beating as the markets digest the pandemic-related news, these cloud standouts -- Microsoft (MSFT -0.23%), Alphabet's (GOOG -0.55%) (GOOGL -0.69%) Google, and Alibaba (BABA -0.22%) -- are even more compelling. Here's why.
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Microsoft: a force in the cloud computing market
Rewind a couple of years and Microsoft was a scrappy competitor to Amazon Web Services, Amazon's (AMZN -0.55%) huge and successful cloud unit. But more recently Microsoft has changed that, putting a lot of blood, sweat, tears, and money into growing that part of its business, and it's paid off.
Microsoft has seen several quarters of double-digit revenue growth as it slowly and methodically chips away at AWS' dominance. In its fiscal second quarter, Microsoft's Azure cloud unit saw 62% growth. Office 365, its cloud-based service that has more than 38 million subscribers, is being rebranded Microsoft 365 and will offer two different monthly subscription plans. The more customers who pay monthly, the less time Microsoft has to spend getting them to upgrade their OS every few years.
Then there's the demand being created by the COVID-14 pandemic. With the world sheltering in place, cloud companies like Microsoft are seeing a huge surge in usage. Skype, its cloud-based video conferencing tool, saw daily users increase 70% month over month, while there's been a 220% increase in Skype calling minutes. Teams, its digital collaboration tool, now has more than 44 million daily active users. Back in November, it had 20 million users. Meanwhile, Azure has seen a 775% increase in cloud services in regions that are enforcing strict social distancing rules. Sure, that demand is being driven by the pandemic, but a lot of it should remain once the virus is contained as companies embrace remote work cultures.
With shares of Microsoft under pressure along with the rest of the market, and with cloud demand increasing, it is among the cloud computing stocks to buy in April. Let's look at the other two.
Google Cloud is an up-and-comer in the market
AWS by far dominates the cloud computing market, owning 32.4% share in the fourth quarter, while Microsoft is a distant but closing-in second-place rival with 17.6% market share. Google Cloud is in third place with only 6% share. But Google doesn't want to stay that way. It has ambitions to eventually capture $25 billion in annual sales.
Part of the way Google would get there is through acquisitions. Under the direction of Google Cloud head Thomas Kurian, Google Cloud has been making buys to bolster its offering. The latest is Cornerstone Technology, which helps customers move from a mainframe to the cloud. In June, it acquired Looker Data Sciences for $2.6 billion.
In addition to acquisitions, Kurian has restructured the unit and laid out a strategy to go after the retail, healthcare, financial services, media and entertainment, and industrial and manufacturing markets. While many of these industries are taking a hit amid the pandemic, demand for Google's cloud services, particularly in the healthcare, financial services, and media and entertainment industries, should increase as online demand continues to surge. Customers not only get Google's offerings, but access to artificial intelligence and data analysis, which is attractive to corporate customers.
Just like Microsoft, Google Cloud is seeing demand skyrocket in recent weeks. Google Hangouts Meet, the company's video conferencing and collaboration tool, has seen daily usage jump 25 times since January, and day-over-day growth is more than 60% during the past few weeks. Meanwhile, Google Classroom is seeing unprecedented usage, with 1.3 million students in New York City alone using it to learn.
Google may be a third-place player, but with a chief aiming to make it a formidable rival to AWS and Microsoft, it won't stay that way for too long. Because of all that, this growing cloud provider is among the ones to own this month.
Alibaba is a cloud healthcare play
Amid the COVID-19 pandemic, companies across the globe have been stepping up. That's true of Microsoft and Google, which have been providing researchers with free access to computing power, data analysis, and expertise. It's also true of Alibaba, the Chinese e-commerce giant, which has a strong and growing cloud business.
In March, Alibaba Cloud announced it was giving medical professionals AI technology to help them research the coronavirus and speed up diagnostic tests. Alibaba Cloud wants to support researchers around the world as they try to develop a vaccine and treatments for COVID-19. The company, relying on video conferencing and AI translations of 11 languages, is also aiming to create a virtual community where doctors in China can share their knowledge and lessons learned with the rest of the medical community around the world.
In the fall, Alibaba Cloud rolled out an AI chip that can handle machine learning tasks and will improve its cloud offering. The chip, which marks a first for the company, is part of its strategy to use advanced technologies to enhance its computing capabilities and lure more business its way.
Alibaba Cloud may be in fourth place from a market share perspective, but the business is seeing strong growth, with revenue climbing 62% in its fourth quarter. The coronavirus is hurting its e-commerce prospects, but with cloud demand poised to increase for the same reasons it will surge at Microsoft and Google, it should cushion some of the blow. With shares down so far in 2020, it's easy to see why Alibab rounds out the top three cloud stocks to buy in April.
