Amazon.com, Inc. (AMZN), Alphabet Inc. (GOOG, GOOGL) and Microsoft Corporation (MSFT) are three of the biggest names in technology. And when all three of these tech stocks are fighting tooth and nail for the same market, it’s a very big deal.
That market is cloud computing
Many investors have been jaded by the false promise of “the cloud,” with everything from big tech stocks like SAP SE (SAP) to small software stocks like Cornerstone OnDemand (CSOD) pledging big growth on the expansion of cloud computing … but falling flat in recent years.
But AMZN, GOOG and MSFT all have much better pedigrees — and most importantly, all have deep pockets and a big will to succeed.
Floating on Cloud Computing
So how big is the potential market for these cloud computing stocks?
Well, for starters Amazon, Google and Microsoft are all playing in the “public cloud services” space — that is, where services are provided from a third party, like one of these tech stocks, to various businesses and consumers in many ways.
This is in contrast to a private cloud, which allows access for only one company or for one narrow business use.
According to tech research firm Forrester (FORR), this segment is in “hypergrowth” mode, and will hit a massive $191 billion by 2020.
That’s a huge potential revenue stream, and one that all three of these players are gunning for in a big way.
Here’s how they stack up:
- Amazon cloud computing is well on its way, with AMZN stock holders very encouraged recently by revelations about the company’s cloud business in earnings reports. Specifically, Amazon Web Services saw revenue soar 81% year-over-year and is running at about a $6 billion business annually. AWS is already a leader in public cloud services, and the other tech stocks are racing to catch up.
- Microsoft cloud computing services, while perhaps not as innovative in the minds of many investors as AMZN and GOOG, is a close second to Amazon Web Services thanks to its big enterprise presence. If you count Office 365 and similar services, MSFT stock is already raking in over $6 billion in cloud revenue and is projecting $20 billion by 2018. How much of that Office cash is just a holdover from consumers who haven’t adopted a newer and better format remains to be seen, but it’s hard to discount the power of Microsoft stock when it comes to enterprise software brands.
- Alphabet isn’t exactly laying down and ceding the battlefield to these two rivals. Google cloud computing services such as Google Drive and Google Docs have long being offered, and recent moves from the company including a corporate restructuring and rebranding hint that GOOG stock holders should expect ambitious efforts beyond the core advertising that feeds this tech stock.
Bottom Line
There are reasons to like all of these players in the cloud computing space. And if, in fact, the public cloud market grows as large as Forrester expects, then there may be room for all three.
But it’s safe to say that the race to the bottom in cloud prices will make competing increasingly difficult for anyone who falls behind. Consider AMZN stock started to offer unlimited storage for $59.99 a year — a move that will likely drive smaller rivals like Dropbox and Box Inc. (BOX) into insolvency in short order as they race to buy hardware and offer cloud storage essentially at or below cost.
Who remains standing at the end of this is anyone’s guess. But one thing’s for sure — whoever wins will have a dominant position in the future of the internet.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
