The stock market is currently on earnings alert for the quarter ended June 30, and so far, results have been stronger than Wall Street expected. Investors have rejoiced by sending the technology-heavy Nasdaq-100 index 12.5% higher in the past month alone.
But some of the largest trillion-dollar tech companies right now, namely Microsoft (MSFT 0.43%), Alphabet (GOOGL 0.75%)(GOOG 0.87%), and Amazon (AMZN 2.61%), share a common theme: Their growth is being led by their respective cloud services businesses.
The cloud is rapidly expanding in both scope and value, with one estimate by Grandview Research suggesting it could be a $1.5 trillion annual opportunity by 2030. Here's how investors could capture a slice of that pie by owning these three tech giants.
1. Microsoft: Providing both business and consumer cloud products
Cloud computing is an ever-expanding technology that originated to serve the needs of businesses, helping them store data and migrate their operations online to adapt to the digital economy. But it's now just as common in consumer applications. In Microsoft's case, the cloud has transformed the company's Office 365 document suite into a powerful platform for real-time collaboration. And its OneDrive cloud storage solution allows personal files to be accessed from anywhere at any time.
NASDAQ: MSFT
Key Data Points
But Azure, Microsoft's flagship cloud services platform for businesses, is driving the company's Intelligent Cloud segment. It's a key reason Intelligent Cloud has grown to become the largest of Microsoft's three business units by revenue. Azure serves 95% of the Fortune 500 companies, in one way or another, across 200 products and solutions, ranging from simple data storage to complex tools powered by artificial intelligence.
The quarter ended June 30 marked the last of Microsoft's fiscal 2022 year, and Intelligent Cloud revenue grew 25% to $75.2 billion for the year compared to fiscal 2021. It was a much faster growth rate than the 18% delivered by the rest of the company overall, with total revenue topping $198 billion. But Intelligent Cloud was certainly underpinned by Azure, which soared by 45% over the period.
Azure is widely considered second-best by scope and revenue to Amazon Web Services (AWS), but its recent growth rate suggests it might be making up some ground.
2. Alphabet: Its Google Cloud is small, but it's growing quickly
Alphabet is one of the most diverse companies in the tech sector, with a range of business units in both the software and hardware spaces. It's best known for its flagship brand, Google, which is responsible for the most successful search engine in the world, currently holding a 91% global market share.
But it's Google Cloud that generated the quickest growth in Alphabet's recent second quarter of 2022, partly because the slowing economy has hurt demand for advertising, which is where the company generates the bulk of its revenue. Nonetheless, Google Cloud generated $6.3 billion in Q2, representing 35% year-over-year growth -- a much faster pace than the company as a whole, which delivered a revenue increase of 13%.
But Google Cloud only made up 9% of Alphabet's total $69.7 billion revenue base in the quarter, so it's still a relatively small piece of the business. However, that was a jump from the same period last year when the segment represented 7.4% of total revenue, so it's gradually making a larger contribution.
Like Microsoft, Google serves consumers through stand-alone cloud products like Drive (for file storage and sharing) and its document suite. But Google Cloud is primarily a business services platform that now provides solutions to over a dozen industries.
The growth in Google Cloud is a great reason to buy Alphabet stock, but there are plenty of others that make it extremely attractive right now.
3. Amazon: AWS continues to lead the pack
When it comes to cloud services, only one provider stands at the peak of the mountain. Amazon Web Services (AWS) leads the space by revenue and currently provides solutions to over 20 industries. It has the most diverse set of offerings and the reach to cater to businesses of all sizes, from tiny start-ups to multinational enterprises.
NASDAQ: AMZN
Key Data Points
The true value of AWS is highlighted by its responsibility for all of Amazon's operating income over the last four quarters. That's right -- despite only contributing $72 billion to Amazon's $485 billion in total revenue in the last 12 months, AWS is the profit engine behind the entire company.
In the recent second quarter of 2022, AWS also led Amazon's growth. The segment's revenue expanded by 33% year over year compared to just 7% for the company overall.
The profitability disparity probably won't last forever because Amazon's e-commerce business is temporarily falling victim to inflationary pressures and a weaker consumer. The company also hasn't revealed just how profitable its booming advertising business is. However, it did generate $8.7 billion in sales for the quarter and grew by 18%, which also was much faster than Amazon overall.
One thing seems clear right now: AWS is still delivering results in good times and difficult ones. As the leader, it's best positioned to benefit as the cloud transitions into a multitrillion-dollar opportunity in the future, and that alone makes Amazon stock worth buying.
