Alphabet Inc (GOOGL) Stock Can Soar as Cloud Strategy Becomes Clear

When it comes to the cloud,, Inc. (NASDAQ:AMZN) — the dominant name in the category — is not alone anymore. Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) this week announced its cloud presence with authority, boasting a list of prominent client wins, including Verizon Communications Inc. (NYSE:VZ) and eBay Inc (NASDAQ:EBAY).

Alphabet Inc (GOOGL) Stock Can Soar as Cloud Strategy Becomes Clear

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At the company’s Google Cloud Next conference keynote, Alphabet chairman Eric Schmidt declared, “We’re here for real.” He added, “[Google] has the money, the means and the commitment to pull off a new platform of computation globally, for everybody who needs it.”

The Mountain View-based company calls Google Cloud, which is third behind No. 2 cloud player, Microsoft Corporation (NASDAQ:MSFT), its next growth engine. Google CEO Sundar Pichai deemed the platform as an “extraordinarily big bet.”

To that end, Alphabet, which on Thursday unveiled an enterprise version of its Google Hangouts messaging platform called “Hangouts Chat,” must find ways to convince current and would-be enterprise clients that Google Cloud is the platform they belong on.


Despite the strong revenue Alphabet generates, Google’s cloud revenue, which is estimated to have a run rate of only $1 billion, according to Recode. The company ended fiscal 2016 with revenue of $90.27 billion.

By contrast, market leader Amazon’s Web Services last year surpassed an annual run rate of $12 billion. Notably, Google Cloud’s $1 billion run rate is still about one-third of Microsoft’s $2.7 billion. But all of this means that Google still has tons of room for growth. Over the past year, the company has landed cloud clients such as Walt Disney Co (NYSE:DIS), The Home Depot, Inc. (NYSE:HD) and even rival Apple Inc. (NASDAQ:AAPL).

Why are these industry titans important to Google?

According to IDC, worldwide spending on public cloud services is expected to soar to more than $195 billion by 2020, more than doubling the revenue of 2016. “Cloud software will significantly outpace traditional software product delivery over the next five years, growing nearly three times faster than the software market as a whole and becoming the significant growth driver to all functional software markets,” said Benjamin McGrath, senior research analyst, SaaS and Business Models.

Meanwhile, Pacific Crest analyst Brent Bracelin forecasts public cloud spending, currently around $58 billion annually, will triple to $205 billion in the next three years. As Google’s cloud business grows, GOOGL stock will too.

Bottom Line for Alphabet

GOOGL stock closed Thursday at $857.84, up 0.49%. The shares have risen 8.7% year to date, while climbing 17.6% over the past year. These aren’t breathtaking returns when compared to the almost 50% one-year gains Amazon stock has delivered, but Alphabet looks poised to make up ground if the company can realize its cloud ambitions.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.

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