Microsoft And Amazon Lead Cloud Computing Boon Ripe For Investment

29th Oct '15 by Edmund Shing

3 comments 8979 reads

But the real star of the show was the 14% constant currency growth in sales from the Intelligent Cloud division, with Microsoft's Azure cloud services product doubling revenues over the same period a year ago.

Chart 1. Microsoft and Amazon Hit New Highs

1. Microsoft and Amazon Hit New Highs Source: Bloomberg

This mirrors the very strong performance seen in Amazon's quarterly earnings report, with Amazon Web Services posting a very impressive 78% jump in sales over a year ago, driving a surge in Amazon's profit growth.

So two of US Tech's hottest cloud computing giants are hitting new share price highs (Chart 1), joined by the third, the company formerly known as Google, now called Alphabet (US code: GOOGL).

Looking at the growth of the cloud computing sector overall, it continues to be very impressive as more and more companies take advantage of Web 2.0 to produce new disruptive business models.

Think about the impact that new web-based service businesses have had in taking market share: Uber in taxi services, Airbnb in short hotel stays, Netflix in video on-demand and of course the continued boom in convenient, online shopping at the expense of the traditional High Street.

The cloud computing companies that provide the essential web hosting and computing power behind these web-based companies are led by Amazon and Microsoft, but also include IBM, Alphabet (Google) and Salesforce.com (Chart 2).

Chart 2. The Top 5 Cloud Computing Companies

Source: Synergy Research Group

US technology dominates the cloud

Cloud computing is dominated by US technology behemoths. So if you want to invest in the growth of cloud computing, the most obvious way is via buying shares in US tech companies.

You could buy shares in one or a number of these technology giants; however that requires a share account that allows you to trade in US-listed shares, and also requires you to buy these shares in US dollars. This is the approach I take personally, but is perhaps only for the experienced investor who wants to invest regularly in US shares.

ETFs and investment trusts: An easier solution

For investors who do not want to take this more complicated route, a far easier solution lies in exchange-traded funds and investment…

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mpat89

29th Oct '15

I am skeptical about investing in 'the cloud'.

The likes of AWS will keep some market share because it's competitive advantage is having more scalability than others, but how long until smaller providers are able to build up sufficient scalability?

Entry requirements are low. With £10K I can go a build a cloud tomorrow and start selling pay as you go services.
source: http://onapp.com/

With a big enough investment for penetrative pricing and marketing I can grow my sales for a good while, it's what GoDaddy are doing: http://www.stockopedia.com/share-prices/godaddy-inc-NYQ:GDDY/ (CAGR revenue + 22.7%) [not cloud but web hosting - the concept is the same. GoDaddy has no other advantage other than its marketing and support budget]

So the market should end up getting way more competitive and I can't see why any one company should win over the other. Which leaves hosting 'real estate' - the places where companies need to house their clouds, such as datacentres like telecity:
http://www.stockopedia.com/share-prices/telecity-LON:TCY/

But look at those declining margins. Why? Because of cloud of course! It's got high density, which means less space. Which leads me on further..
How long until the technological advances make even the most sophisticated and resource hungry applications dirt cheap to run?
I cast my mind back to 2005 when a dual processor server would cost £200+/month to rent, and now it's sub £100. That's not to say there is no demand, but how long until the resource capacity and efficiency is so high that the market is worth very little?

Quick thoughts out loud, please don't pick me apart and question me as my comments are far from bulletproof but instead discuss further.

Ilya Geller

30th Oct '15

Meanwhile Oracle structures data:
1. Oracle obtains statistics on queries and
data from the data itself, internally - Google and all search on
Internet engines spy after statistics, named 'popularity'.
3. Oracle gets 100% patterns from data - Google and others get 1-10%.
4. Oracle uses synonyms searching - Google and others cannot.
5. Oracle indexes data by common dictionary - they cannot.
Oracle killed SQL.
Amazon and Microsoft use SQL databases only, as well as all IT Industry.
You can say Oracle owns Database Industry and Internet

cig

The cloud may become a utility, but then that's what most profitable companies do in the normal world: competently making/running some well known widget/service. I'd expect the top players to remain consistently if not outstandingly profitable.

It will be hard for the mid to small players, due to lack of scale, unless they find a niche the big boys are not interested in addressing.

Microsoft and Amazon lead cloud computing boon ripe for investment

US technology dominates the cloud

ETFs and investment trusts: An easier solution

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Edmund Shing

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