The cloud market has surged in recent years as the COVID-19 pandemic forced many companies to take their businesses online and adopt hybrid working styles. Meanwhile, advances in artificial intelligence (AI) have further boosted the industry, as many cloud platforms are attracting new clients by adding more AI services. As a result, it's not a bad idea to consider adding a cloud stock to your portfolio to potentially benefit from consistent long-term gains.
According to data from Fortune Business Insights, the cloud market hit $569 billion in 2022 and is projected to continue expanding at a compound annual growth rate of 20% through 2030. This growth potential signals an investment opportunity for some of the industry's biggest players.
Companies like Amazon (AMZN -0.09%), Microsoft (MSFT 0.22%), and Nvidia (NVDA 1.75%) are attractive options, as each has a solid position in the cloud market and could substantially benefit from the sector's development. Here are the reasons they're the three top cloud stocks to buy in July.
1. Amazon
Amazon is a no-brainer cloud stock. Its platform, Amazon Web Services (AWS), is responsible for the largest cloud market share in the industry, at 32%.
The company's dominance has led to double-digit revenue growth for over a decade, with AWS reporting a 29% rise in fiscal 2022. Amazon's cloud business has diversified its earnings, proving a massive asset amid last year's economic downturn.
Inflation hikes in 2022 led to reductions in consumer spending. Amazon's e-commerce segments reported combined operating losses of $10.6 billion. However, the company remained profitable, thanks to AWS' operating income of $22.8 billion for the year.
While AWS more than pulled its weight last year, it has also triggered concern among investors. The cloud platform has experienced slowing revenue growth for five consecutive quarters, hitting 40% in the first quarter of 2021. That figure fell to 14% in Q1 2023. The decline is primarily due to pullback from businesses that have been forced to slash cloud budgets after interest-rate hikes.
However, AWS continues to have a promising long-term outlook. In addition to the prospect of easing inflation, the company has plans to invest $13 billion in AWS' expansion in India, one of the fastest-growing cloud markets.
Meanwhile, Amazon is bolstering its position in AI by recently unveiling two new services on AWS: Amazon Bedrock and Code Whisperer. Both are generative AI tools. The former is capable of producing content like full ad campaigns, based on a company's product description. Developers can use the second to generate necessary codes.
Amazon has a promising lead in cloud computing. Its dominance is likely to continue offering gains for years.
2. Microsoft
Microsoft is home to the world's second-largest cloud platform, Azure. The service boasts a 23% market share and has massive growth potential, thanks to Microsoft's position as the biggest investor in ChatGPT developer OpenAI.
The partnership has allowed the company to procure exclusive licenses on multiple AI models from OpenAI and integrate its technologies across several programs. Many of Microsoft's homegrown services, like Word, Excel, Bing, and Azure, have already received AI upgrades, with more on the way.
Since its founding almost 50 years ago, the tech giant has made a name for itself as a leader in software. Potent brands like Office, Windows, and Azure give it a massive advantage in AI. Microsoft's 365 productivity software is an essential component of most American businesses; this could lead many companies to turn to Azure when seeking AI cloud services.
In addition to investing in OpenAI, Microsoft's priority on expanding Azure is evident in a recent collaboration with chipmaker Advanced Micro Devices. The Windows company is reportedly supporting AMD's AI chip expansion by providing financial and engineering resources. If Microsoft can procure chips specifically designed to run its AI models, it could offer the most advanced services in the industry and enjoy boosted cloud earnings in the long term.
3. Nvidia
While Amazon and Microsoft dominate the software side of the cloud industry, Nvidia is an excellent way to back the hardware necessary to run cloud services. The semiconductor company is the biggest name in graphics processing units (GPUs) that power data centers worldwide, hosting different cloud platforms.
Nvidia's biggest claim to the industry is its more-than-decade long partnership with AWS. The company's chips power the market-leading service, substantially bolstering its data center segment.
Before last year, Nvidia's highest earnings segment was gaming, thanks to the popularity of its consumer GPUs among gamers building custom PCs. However, 2022 saw data centers surpass gaming as its biggest segment, with revenue rising 41% to $15 billion.
Alongside Nvidia's position as the primary supplier of GPUs to ChatGPT, the company plays a crucial role in cloud computing. This makes its stock a compelling option for those seeking stocks involved in the cloud industry.
