Two of Wall Street’s hottest stocks, Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) released their second quarter results last week, with both stocks making gains after their earnings impressed investors.
Both companies proved that their businesses are continuing to thrive despite challenging market conditions, but the big takeaway from both tech giants’ results was that their cloud divisions are making gains.
While cloud computing is neither firm’s bread and butter, it’s important to note that both AMZN and GOOG are becoming major players in the industry. This is a big deal to investors, as cloud computing represents a huge growth opportunity.
Analysts at Gartner say that the cloud computing industry could become a $67 billion industry over the next four years. So building a strong foothold in this space is especially important for AMZN and GOOG, whose core businesses are running out of ways to grow their margins.
AMZN Reigns Over GOOG in Cloud Space … for Now
Based solely on the numbers, Amazon is the clear-cut winner. Amazon Web Services, AMZN’s cloud computing arm, saw its revenue balloon to $2.89 billion — a 58% growth spurt. The tech giant recently opened AWS in India, where it expects to serve some 75,000 customers.
This past quarter, AWS celebrated another big win when salesforce.com, inc. (NYSE:CRM ) decided to move its software onto Amazon’s cloud services, saying that Amazon is the most “robust” and “sophisticated” cloud infrastructure provider. So yeah, Amazon has clearly established itself as a leader in the cloud computing space.
Alphabet’s cloud revenue pales in comparison to the figures that Amazon put up, but GOOG doesn’t break out its revenue for that division, so it’s difficult to know exactly how profitable its cloud operation actually is. Alphabet’s “Google other revenues,” which includes its cloud platform as well as several other businesses posted just $2.1 billion in revenue during the second quarter, a 33% increase from the previous year. Those numbers are certainly impressive, but not as impressive as Amazon’s numbers.
GOOG Looks to the Future
At the current moment, Amazon is winning the race to the cloud by a mile; but that doesn’t mean that Alphabet is down and out. GOOG has been working on some big things that could see the firm’s cloud revenue rise significantly in the coming months.
GOOG has cut down on power use at its data centers by 15%, a cost savings that will likely be passed along to consumers and it could allow the firm to undercut its competitors. Google is also working on new ways to use machine learning in order to analyze recorded speech, which could be extremely useful for companies managing customer service calls. Google has also said that its network “is larger than the internet” and is capable of sending hundreds of hours’ worth of video in a single second.
Of course, none of that matters unless GOOG can turn it into dollar signs, but the company is clearly laying the groundwork for what could be one of the most advanced cloud computing services on the market. There’s no denying that Amazon is a step ahead when it comes to the cloud, but Google’s efforts to build a solid foundation make GOOG a good come-from-behind play in the cloud space.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
