Who Will Win This $1.5 Trillion Market Opportunity in 2024?

Considering the largest company in the world by market cap (Apple) has $383 billion in annual sales, a $1.5 trillion market opportunity is massive. So what is this $1.5 trillion opportunity we speak of? It's cloud computing.

Cloud computing is a broad industry, but essentially, it's one company renting computing space and power from another. The current leaders of this large opportunity are Amazon (AMZN 3.43%) with its Amazon Web Services (AWS) product, Microsoft (MSFT 1.82%) Azure, and Alphabet's (GOOG 9.96%) (GOOGL 10.22%) Google Cloud.

These are some of the biggest names in tech, and all can put out innovative products. But which will conquer the cloud computing market in 2024?

Amazon is winning the battle

As of Q2 2023, the cloud computing market share looks like this, according to Synergy Research Group:

Data source: Statista and Synergy Research Group. Table by author.

No other company has more than a 4% market share. Amazon, Microsoft, and Alphabet collectively controls about two-thirds of the cloud infrastructure market in total.

So why is cloud computing so important?

Cloud computing allows customers to scale their computing power easily. When companies set out to collect data or run a website, they may not know how much power they'll need a couple of years from now. This makes purchasing an in-house data center risky, as they may buy too much or not enough power. But, if the workload is offloaded to the cloud, they can scale up or down easily.

Another area where cloud computing is important is artificial intelligence (AI) workloads. Creating an AI model takes a lot of computing power, but many companies don't need a supercomputer once they've created their models. Instead, they can rent the required power from one of these three providers and have a cost-effective way to access extreme computing power.

The cloud computing market opportunity is massive, as many companies are switching away from in-house computing. According to Grand View Research, this will power the $619 billion market opportunity in 2023 to $1.55 trillion by 2030.

And if any of these companies can maintain their market share, the results will be dramatic.

Cloud computing will have a drastic effect on each company's finances

AWS has had $87.9 billion in sales over the past month. If it can capture half of the available market opportunity by 2030 and maintain its 33% market share, that would bring AWS revenue up to $256 billion -- about triple where it is now. Furthermore, this is high-margin revenue, and with AWS's 30% operating margin, that would create $77.4 billion in operating profit for Amazon. For reference, Amazon has produced $26 billion in operating income over the past 12 months.

That's just one example, but it's pretty obvious how much of a boost cloud computing will be for all three in the coming years.

So which stock is expected to gain the most in 2024?

Azure and Google Cloud had a strong 2023, as revenue rose in the mid- to high-20% range every quarter. AWS hasn't seen the same success, as its revenue grew 12% in Q3, which is about the same pace it has grown the entire year.

That's a potential problem for Amazon, as it is conceding market share while the other two are capturing it. However, 2024 should be different.

The decline in growth for AWS was caused by customers optimizing their cloud spending. While the others experienced the same optimization trend, it wasn't near Amazon's level. However, management believes this trend is nearing an end, as they see the optimization activities declining and new workloads coming online.

As a result, I think Amazon Web Services will have a better year, as it will be up against easy comparison versus the other two's difficult ones. Still, I don't think investors are worried about which of these three will win outright, as they all will succeed as long as they are invested in the cloud.

So as long as you own one of these businesses, you'll be well positioned to capitalize on the shift to the cloud.