As is the norm when trying to predict growth in a rapidly expanding market, estimates for just how big cloud computing will become are all over the board. But one thing is certain: the cloud is a huge market that's growing at a phenomenal rate. Some industry pundits suggest that combined cloud-related sales will total over $300 billion this year.
Within the broad definition of "cloud-related sales" there are multiple sectors, including infrastructure, storage, and Software-as-a-Service (SaaS), among others. Not everyone plays in the same cloud ballpark, though, which is why Microsoft (MSFT 0.13%), IBM (IBM -0.33%), and Amazon.com (AMZN -1.44%) are stocks to watch in the cloud for different reasons. They each excel in their particular niche.
Hail to the king?
Amazon.com made big news last quarter when CEO Jeff Bezos announced that "Amazon Web Services [AWS) is a $5 billion business and still growing fast -- in fact it's accelerating." Bezos added that AWS launched an enhanced cloud service that offers unlimited storage space. Great news, and it seemed to reinforce what so many industry pundits suggest: AWS is king of the cloud.
Not so fast. Spending on infrastructure -- a necessity for cloud host providers like AWS -- will grow an expected 30% annually. Despite what the pundits say about AWS as the clear-cut leader, it will need to provide more analytics and SaaS solutions -- hosting is expensive, and becoming more and more commoditized daily means margins are razor-thin.
At $5 billion in cloud revenues Amazon.com is certainly a stock to watch, but not necessarily the best investment option. If Bezos is able to deliver on his promise to "remain dedicated to inventing on [customers'] behalf," Amazon.com could really drive cloud sales. Clearly it's sitting on a huge base by hosting customers; if it could introduce SaaS-type solutions, AWS would really take off. For cloud investors, that's what makes Amazon.com worth watching.
Don't look now
One of the fastest growing areas of the cloud is SaaS, a sector that will generate an estimated $106 billion in revenues by next year, a 21% increase over 2015. It's Microsoft's software development strength that sets it apart from other cloud SaaS providers, having made it arguably even larger than longtime king AWS as measured by revenues.
Once again Microsoft announced triple-digit cloud growth last quarter, and now boasts an annual run-rate of a staggering $6.3 billion. What makes Microsoft's cloud results so impressive is the relatively short time it's been focused on CEO Satya Nadella's "mobile-first, cloud-first" mantra. By contrast, AWS celebrated its 10-year anniversary recently.
Combined with its Azure platform, Microsoft has a bevy of cloud SaaS solutions to offer, and strategic partnerships with other cloud performers like Salesforce.com will provide even more opportunities. If it's not there already, Microsoft should make your short list of stocks to watch in the cloud.
Coming on strong
Another relative late-comer to the cloud is longtime hardware leader IBM. Like Nadella, CEO Ginni Rometty has her own cloud mantra, IBM's "strategic imperatives." Included in IBM's transition to new markets are its cloud services. Like Microsoft, IBM doesn't rely on hosting for its cloud revenues, which is why it can already be counted among the industry's leaders.
Adjusting for currency exchange rates, IBM cloud revenue jumped over 75% last quarter and is now tracking at $3.8 billion annually. IBM also has another card or two up its proverbial sleeve in that it is one of the leading big data providers around, meaning it essentially handles the collection, analysis, and utilization of massive amounts of data. What does big data, not to mention the information garnered from the Internet of Things (IoT), have to do with IBM's cloud efforts?
Both are expected to be primary drivers for switching to the cloud. As companies realize the sheer volume of information collected, maintaining it in-house not only becomes unwieldy, it's expensive and next-to-impossible to utilize to its full potential.
IBM, along with Amazon.com and Microsoft, are all worth watching as the shift to the cloud continues.