Cloud computing has been a defining trend of the last decade, impacting everyone from individual consumers to global enterprises. The ability to access on-demand data storage and computing resources in the cloud is much cheaper, faster, and easier than buying and maintaining on-premise solutions.
According to Gartner, in the wake of the coronavirus pandemic, growth in the public cloud market is set to accelerate in 2021. And by 2024, 14% of IT spend will go to cloud computing, up from 9% in 2020. This trend should benefit many companies across various industries, but Amazon (AMZN +0.20%), Fastly (FSLY +8.44%), and Arista Networks (ANET +3.22%) are well positioned to be three of the biggest winners. Here's what investors should know.
Amazon: Creating the cloud
Amazon Web Services (AWS) is the world's largest provider of public cloud resources like storage, computing, and databases. Compared to other cloud providers, AWS has a more robust offering of services and features, which has helped the company claim and maintain an enormous chunk of the cloud infrastructure market.
|
Cloud Service Provider |
2018 Market Share |
2019 Market Share |
Q3 2020 Market Share |
|---|---|---|---|
|
AWS |
33% |
32% |
32% |
|
Microsoft Azure |
14% |
17% |
19% |
|
Google Cloud |
4% |
6% |
7% |
Data source: Canalys.
Additionally, Amazon Web Services' scale and market-leading position has allowed the company to establish a larger partner ecosystem than other cloud providers. Thousands of software vendors like CrowdStrike and MongoDB have designed products for AWS, and leading consulting firms like Deloitte and Accenture provide the technical expertise needed to help clients successfully migrate to Amazon's cloud. This network of partners should help drive customer growth as cloud computing continues to gain traction.
Image source: Getty Images.
As a caveat, investors should be aware that Google Cloud and Microsoft Azure are growing revenue more quickly than AWS, and both have gained market share in the last few years. However, Amazon's business as a whole raked in $348 billion over the trailing 12 months. By comparison, Alphabet's sales totaled $172 billion, and Microsoft generated $147 billion in revenue -- less than half of Amazon's top line in both cases. Even more compelling, Amazon's total revenue is growing more quickly, up 117% over the last three years. That fast-paced growth, coupled with the depth of the company's cloud portfolio, should help Amazon stay ahead of its rivals.
Fastly: Making the internet faster
Fastly's edge cloud differs from centralized public clouds like AWS because its data centers are strategically positioned near internet exchange points (locations where different internet networks connect). This means Fastly's servers sit between its customers and end users' devices, positioning Fastly to rapidly process data and deliver content like websites, applications, and streaming media. Put another way, Fastly's edge cloud is built for speed.
Currently, Fastly is much smaller than market leaders like Akamai and Lumen (formerly CenturyLink). But Fastly's edge cloud platform is also faster and more efficient, which results in cost savings for Fastly's customers and faster, more reliable content delivery for end users and devices. This advantage has helped Fastly win clients like Shopify, Slack, and FuboTV. Moreover, it has allowed Fastly to grow much more quickly than rivals like Akamai and Lumen, an indication that the company is taking market share.
FSLY Revenue (TTM) data by YCharts
Despite the company's past success, Fastly still has a large and expanding market opportunity. The company's recent acquisition of Signal Sciences bolsters its security portfolio, further increasing Fastly's value proposition to customers. Moreover, as connected devices increase in number, edge computing solutions will become increasingly necessary, because data will need to be processed at the network edge (where the data is generated) in order to provide end users with reliable, secure digital experiences. That's why management estimates Fastly's total addressable market will reach $35 billion by 2022 -- a figure that gives Fastly a long runway for growth.
Arista: Connecting the cloud
Arista provides the networking hardware and software that enterprises like Microsoft and Facebook need to build large-scale cloud data centers. Unlike Cisco Systems, Arista has prioritized software development over hardware-centric solutions. As a result, the company's extensible operating system (EOS) -- the software that powers its switches and routers -- allows for better automation and monitoring compared to Cisco's products, reducing operating costs for Arista's customers.
Likewise, Arista's CloudEOS and CloudVision software further simplify cloud networking, enabling clients to deploy and monitor networks across private and public clouds, including AWS, Google Cloud, and Microsoft Azure. Put another way, these products allow enterprises to easily interconnect and manage all of their network environments, which reduces cost and complexity. It also means Arista's customers can focus resources elsewhere, which ultimately results in increased productivity.
In the years ahead, the proliferation of connected devices will place additional strain on cloud data centers. To address this, enterprises will need networking platforms that optimize performance while minimizing complexity and expense. And Arista's software-driven solutions fit the bill perfectly.
