While forecasts vary, virtually all suggest that both companies and consumers are in the midst of a substantial shift to cloud computing. Software-as-a-Service (SaaS) alone is expected to become a $106 billion industry by 2016, a 21% jump from forecasts for this year. Security, business intelligence (BI), and data storage in the cloud are also growing at phenomenal rates.
For investors, the question is how to best take advantage of this huge industry, particularly when it seems nearly every tech company on the planet claims to be the cloud provider of choice. Microsoft (MSFT 1.19%), IBM (IBM 2.55%), and Intel (INTC +11.93%) are all on pace to differentiate themselves from the pack. As an added bonus, the three industry behemoths also share another common trait: an industry-leading dividend yield.
Hitting the mark
Even as cloud technologies and services remain in their early stages, it has become abundantly clear that revenue -- at least significant revenue -- is not going to come from hosting. Many of the big-time cloud providers have essentially made cloud data hosting a commodity, which is ideal for Microsoft. SaaS solutions will be a major source of growth, and there are few tech companies around that can match Microsoft's suite of products.
Though many analysts and investors focused on Microsoft's 13% drop in Windows OEM Pro and non-Pro revenues last quarter -- which explains its rather dismal stock performance year-to-date -- CEO Satya Nadella and team are delivering where it counts: his "cloud-first" mantra. Cloud revenues jumped a whopping 114% from the year-ago period, an impressive sixth straight quarter where the company enjoyed a triple-digit increase in cloud revenue.
At an annual run-rate of $5.5 billion in sales, if Microsoft is not at the top of the cloud heap, it is awfully close. And with its history of triple-digit growth rates, investors can expect more of the same when the company announces third quarter fiscal 2015 earnings later this month.
All things to all people
As the world becomes more "plugged in," entire industries are beginning to recognize the value of utilizing the data generated by consumers via mobile, PC devices, and Internet of Things-related (IoT) technologies. Amassing and storing the data via the cloud is one thing, but actually analyzing it and generating actionable results is a whole different ballgame. And that is where IBM enters the picture.
What differentiates IBM from its cloud competitors is its wide-ranging capabilities as it relates to data. From a $1 billion investment last year in its Watson super-computer unit to its recently announced $3 billion commitment to driving growth in the Internet of Things, IBM is positioning itself as a leading cloud-based, big data, and IoT leader, and it is working.
Last quarter, IBM generated $7 billion in total cloud sales, a 60% jump from the year prior. Now, some of that came from existing sales that were migrated to its cloud unit, but its $3.5 billion annual run rate of SaaS cloud revenues is nothing to sneeze at. With its recent investments and the incorporation of the IoT and big data all delivered via the cloud, IBM is a force to be reckoned with.
The nuts and bolts of the cloud
Similar to both Microsoft and IBM, despite record fourth quarter and full-year 2014 earnings, Intel shareholders have not enjoyed a great 2015. Down over 14% year-to-date, investors cannot seem to get past the stagnant PC market -- the primary source of Intel revenue. And there is something to be said for the PC-related negativity -- over 60% of revenue in the most recent quarter came from the PC unit.
But when cloud-related revenues are taken into account, Intel starts to look like the value stock it is. As with IBM, Intel recognizes that analyzing the unprecedented amounts of data the cloud will amass offers huge potential. Why? Because cloud providers require data centers and the ability to process all that information, and a look at last quarter indicates that CEO Brian Krzanich's pledge "to lead Intel into the next era" is right on track.
Not only did the Intel data center unit boast a 25% year-over-year revenue increase, the $4.1 billion in sales made up a larger portion of its total revenue. In other words, cloud-related data center revenue is becoming a key driver of growth at the company, right in line with Krzanich's strategic objectives. Just as with Microsoft and IBM, Intel offers shareholders about a 3% dividend yield.
