There's a good reason why investors should keep an eye on cloud computing stocks. The cloud computing market is forecast to reach $397 billion next year, up 47% from 2020.
Plenty of companies technically qualify for this category because so many businesses offer cloud-based services these days. But investors should focus their attention on some of the clear leaders in the space, including Amazon (AMZN +0.97%), The Trade Desk (TTD +18.39%), and Nvidia (NVDA +0.10%). Here's why they lead the cloud computing pack.
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Amazon has its head in the cloud
It may be best known for its e-commerce business, but the tech giant is also the leader in public cloud computing services via its Amazon Web Services (AWS) unit.
Amazon commands an impressive 32% of the cloud market; its closest competitors, Microsoft and Alphabet's Google, trail with 20% and 9%, respectively.
If that were the only thing Amazon was doing right with AWS, that would be impressive enough. But investors will also be happy to know that AWS is also very profitable for Amazon, generating $13.5 billion operating income in 2020 on $45.4 billion in sales.
To put that into perspective, consider that Amazon's North American e-commerce segment brought in a staggering $236.3 billion in sales in 2020, but generated just $8.7 billion in operating income.
Adding to AWS' strength is the fact that Amazon is also a leader in the artificial intelligence space. More and more companies are looking to tap into cloud-based AI services, and AWS provides lots of opportunities to do so through its demand forecasting and fraud prevention services, among other offerings.
The cloud AI market was worth just $5 billion in 2020, but is forecast to grow by 160% by 2026 -- and AWS is already in a perfect position to benefit.
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The Trade Desk is facilitating a cloud-based advertising transition
Digital advertising still accounts for less than half of all advertising spending, but the shift to digital is well underway. By 2024, the U.S. digital ad market will be worth $278 billion, and The Trade Desk's cloud-based ad platform is already benefiting from that growth.
The Trade Desk's platform helps companies buy ads that are displayed on mobile devices, across the internet, and on connected TVs. This last opportunity should be of particular interest to investors because 60% of U.S. advertisers were planning to shift dollars away from traditional linear TV to connected TV and video streaming this year.
In 2020, which was a uniquely difficult year for many businesses, The Trade Desk still managed to grow its sales by 26% and its net income by 124%. And the company's doing even better in 2021, with sales up 67% in the first half of the year.
Investors who want to tap into a fast-growing cloud platform company that will likely continue growing right along with the shift toward digital advertising should put The Trade Desk at the top of their buy lists.
Image source: Getty Images.
Nvidia is powering the future of the cloud
It may seem odd to put a semiconductor company on a list of top cloud stocks, but Nvidia's chips are powering some of the most advanced cloud data centers these days.
At one time, the company's graphics processing units were primarily used in the gaming market. But technology companies have increasingly been turning to Nvidia's GPUs to improve the performance of their data centers, and that's helped drive explosive growth for the company.
Sales from Nvidia's data center segment skyrocketed 124% in its fiscal 2021, which ended Jan. 31, and there's likely more growth ahead. As companies expand their cloud-based artificial intelligence services -- which Nvidia's chips are rather adept at handling -- more spending will be funneled into supporting them.
Research firm IDC estimates that cloud spending will reach $1.3 trillion by 2025, and with Nvidia already benefiting from high demand from data centers for its chips, its sales will likely continue growing right along with this trend.
