A lot of technology companies these days have their hands in cloud computing, but they won't benefit from this massive market equally. Some companies have already pulled ahead of their competitors in this space and are etching out niches that could give them advantages for years to come.
Three such companies that fit this description are The Trade Desk (TTD 0.53%), Amazon (AMZN 0.81%), and Microsoft (MSFT 2.22%). Read on to find out why.
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1. The Trade Desk: Ad buying in the cloud
This may be an unconventional cloud computing company, but The Trade Desk's cloud-based platform -- which allows companies to buy digital ads for placement across connected TVs, mobile devices, and the internet -- certainly deserves a spot on this list.
While the digital ad market is generally taking a breather right now, The Trade Desk is feeling no need to slow. Sales rose by 22% in the fourth quarter to $49 million, and the company retained its 95% customer retention rate for the ninth year running. That growth is even more impressive when considering that ad sales for many companies are on the decline right now.
But it's not just that The Trade Desk's sales are moving in the right direction, the company is also making moves to prepare for the digital ad industry's move away from online cookies. These trackers have long been used by companies to sell targeted ads, but can also be invasive to users' privacy. To combat this, The Trade Desk helped create a unique identifier, called Unified ID 2.0 (UID2), that allows companies to serve targeted ads while still protecting user privacy.
This move has already proved successful, as The Trade Desk has won over large companies -- including Amazon Web Services, The Washington Post, and many others -- and could help the company successfully navigate an otherwise significant transition in the digital ad space.
When added together, the company's innovative UID2 and its impressive financial growth help The Trade Desk stand out in an otherwise crowded cloud computing market, and give investors a unique opportunity to benefit as the digital ad market grows into its $835 billion market size by 2026.
2. Amazon: The undisputed cloud leader
Amazon is the obvious choice on this cloud list because its Amazon Web Services (AWS) dominates the cloud infrastructure space with about 33% of the market. That's an impressive lead in the global market, which will be worth an estimated $1.6 trillion by 2030.
And while Amazon's e-commerce operation gets most of the attention, it's actually AWS that is by far its most profitable business. AWS earned $5.2 billion in operating income in the most recent quarter, from $21.4 billion in sales. Contrast that with a loss of $200 million from the company's North American e-commerce business, from $93.4 billion in sales.
And while competition is heating up in the cloud infrastructure space (more on that below), Amazon's early lead should keep the company in a solid position in this market as companies become more dependent on cloud-based services.
While I wouldn't categorize Amazon's stock as cheap right now, the company's share price decline of 33% over the past year does offer investors an opportunity to pick up shares for cheaper than they would have paid in the recent past.
3. Microsoft: The rising cloud star
And last but certainly not least is Microsoft with its multifaceted approach to the cloud. First and most importantly in its cloud lineup is the company's Azure cloud infrastructure services. About five years ago Azure had just 15% of the cloud market, but that size has increased significantly to 23%.
The company is also innovating in other areas, including taking big steps to integrate artificial intelligence into its cloud services. Microsoft was an early investor in OpenAI, the maker of the popular large language model ChatGPT, and is now adding the advanced chatbot into its cloud products.
Microsoft has already added ChatGPT to its popular cloud-based enterprise apps in Microsoft 365, and has also put the bot into its Azure cloud service as well. By moving quickly into AI, Microsoft could benefit from both the rise of AI cloud services and AI-powered cloud infrastructure.
This could be a boon to Microsoft's business, as the AI software market will reach an estimated market size of $850 billion by 2030, up from just $53 billion in 2021.
Tech still needs some time
Tech stocks are still under some pressure right now as investors try to gauge what's happening with the economy, interest rates, and inflation. That means investors will likely need to be patient with these stocks over the short term.
But in the coming years, as cloud services continue to increase in demand, The Trade Desk, Amazon, and Microsoft are perfectly poised to grow right along with this expanding market.
