Microsoft and Amazon lead cloud computing boon ripe for investment

Thursday, Oct 29 2015 by

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 HighsSource: 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 (Chart 2).

Chart 2. The Top 5 Cloud Computing Companies

2. The Top 5 Cloud Computing CompaniesSource: 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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My opinions only, not investment recommendations: Please Do Your Own Research

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Microsoft Corporation is a technology company. The Company develops, licenses, and supports a range of software products, services and devices. The Company's segments include Productivity and Business Processes, Intelligent Cloud and More Personal Computing. The Company's products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; video games, and training and certification of computer system integrators and developers. It also designs, manufactures, and sells devices, including personal computers (PCs), tablets, gaming and entertainment consoles, phones, other intelligent devices, and related accessories, that integrate with its cloud-based offerings. It offers an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and it provides solution support and consulting services. more »

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91, Inc. offers a range of products and services through its Websites. The Company's products include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers. It also manufactures and sells electronic devices. It operates through three segments: North America, International and Amazon Web Services (AWS). Its AWS products include analytics, Amazon Athena, Amazon CloudSearch, Amazon EMR, Amazon Elasticsearch Service, Amazon Kinesis, Amazon Managed Streaming for Apache Kafka, Amazon Redshift, Amazon QuickSight, AWS Data Pipeline, AWS Glue and AWS Lake Formation. AWS solutions include machine learning, analytics and data lakes, Internet of Things, serverless computing, containers, enterprise applications, and storage. In addition, the Company provides services, such as advertising. It also offers Amazon Prime, a membership program that includes free shipping, access to streaming of various of movies and television (TV) episodes. more »

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iomart Group plc is a holding company. The Company is engaged in providing secure managed hosting and cloud services. The Company operates through two segments: Easyspace and Cloud Services. The Easyspace segment provides a range of shared hosting and domain registration services to micro, and small and medium-sized enterprises (SME) companies. The Cloud Services segment provides managed cloud computing facilities and services, through a network of owned datacenters, to the larger SME and corporate markets. The Cloud Services segment uses various routes to market and provides managed hosting services through iomart Hosting, RapidSwitch, Melbourne, iomart Cloud Services, Redstation, Backup Technology, ServerSpace and SystemsUp. Its products include CloudSure Hosting Solutions, Managed Services, Storage, Network and Control Panel. It provides Infrastructure as a Service platform and EMC Avamar Cloud Backup for LabVantage Solutions, Inc., a global laboratory informatics provider. more »

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3 Comments on this Article show/hide all

mpat89 29th Oct '15 1 of 3

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.

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: (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:

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.

Professional Services: Web hosting
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Ilya Geller 30th Oct '15 2 of 3

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

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cig 30th Oct '15 3 of 3

In reply to post #110103

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.

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About Edmund Shing

Edmund Shing

Edmund Shing is currently Global Head of Equity & Derivative Strategy at BNP Paribas, and formerly a Global Equity portfolio manager at BCS Asset Management. Edmund focuses on a combination of high-level investment themes and fundamental stock-picking, with a dash of technical analysis in the mix. He has a book published in 2015 by Harriman House, “The Idle Investor”, which provides investors with three simple, easy-to-implement strategies using low-cost ETFs to give a good combination of portfolio performance at a measured level of investment risk. Edmund has previously worked at Barclays Capital (as Head of European Equity Strategy), BNP Paribas (as a Prop Trader), Julius Baer, Schroders and Goldman Sachs over a 21-year career in financial markets based in Paris and London. He also holds a PhD in Artificial Intelligence from the University of Birmingham. You can follow him on Twitter: more »


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