Alphabet: Will GOOGL Stock Head for the Clouds?

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GOOGL - Alphabet: Will GOOGL Stock Head for the Clouds?

Source: Google

The power of cloud computing isn’t lost on anyone in the technology space. We’ve seen how it can be a game changer for both corporations and in everyday life. That’s why there’s been an all-out battle encompassing all sorts of players. So just who are the cloud leaders? Perhaps not who you think. The top three shakes out like this: Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG).

According to Canalys, Amazon held 30.3% of the cloud infrastructure services market in the second quarter, compared to 13.8% for Microsoft’s Azure and 5.9% for Google.

Google Cloud Wars

In a way, Alphabet’s small position in the cloud market is a good thing. It presents an opportunity to make up ground and take market share vs. its competition. Of course, one could argue that prying existing customers away from Amazon and Microsoft may not be too easy.

Amazon’s dominance could also be its Achilles’ heel. With its continuous pressure on traditional retail companies, many happen to also be enterprise cloud customers of its Amazon Web Services (AWS). If those customers begin to defect — Target Corporation (NYSE:TGT) recently announced such a decision — it should benefit GOOGL and MSFT.

I do believe Alphabet can garner more market share, simply because its share is still so low. The company doesn’t break out cloud-specific revenues. It’s lumped in with Google’s “other” businesses, which saw revenues jump 42% year-over-year. Google’s lack of cloud market share hasn’t weighed on GOOGL stock price though, which is up 21% this year.

Everyone knew Amazon had a great e-commerce business. However, the stock really started flying thanks to the revenue and earnings growth provided by its AWS business. In that respect, Alphabet has a great search business, and it’s also got YouTube and other key assets.

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But if it can get its cloud business roaring, it will be a boon for Google’s stock price.

Will It Ever Happen for Alphabet?

What’s the biggest risk factor for Google’s cloud business? Execution. Google is great at what it does, and its results have driven GOOGL stock price up 155% in five years. But it’s dropped the ball more than once.

For starters, look no further than cloud computing. GOOGL is a $660 billion internet conglomerate, but has less than 6% market share? Meanwhile, Amazon sits with more than 30%? Google could’ve made strides way earlier. Maps, email, docs and everything else keeps its ecosystem alive and well. But let’s be honest; it’s Shopping tab will never dethrone Amazon. The Pixel will not replace the iPhone from Apple Inc. (NASDAQ:AAPL). Though admittedly, YouTube can hold its ground against Netflix, Inc. (NASDAQ:NFLX).

My point is, why hasn’t Google already dominated cloud? While it could turn the tables as the years go on, I just don’t know that it will.

Hey, I’m Not Picking on GOOGL

GOOGL stock chart
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Source: Chart courtesy of StockCharts.com

Alphabet does a ton of things right. Google and YouTube are the top two websites on the internet. And yes, that’s ahead of Facebook Inc (NASDAQ:FB). Its advertising and search business is unrivaled, and it’s hard to imagine it will ever be cracked by a competitor. Its strides in self-driving cars have caused some analysts to value Waymo at more than $70 billion.

Clearly, GOOGL knows what it’s doing. Plus, CFO Ruth Porat has been amazing with the financials, stringing together continual earnings and revenue beats. GOOGL is also making strides in A.I. that will hopefully be at the forefront of that industry’s breakout.

Alphabet has had missteps before, but any company that’s made it big has taken risks. Sometimes those risks pan out, and sometimes they don’t. If Alphabet can maintain a steady growth stream in its core businesses, while watering its “other” business seeds, we could see a whole new world of growth. Specifically, if cloud computing — which already has traction — can accelerate over the next few years, GOOGL stock price could head significantly higher.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

GOOGL stock has been in a tight trading range. With a break over $960, it could challenge stiff resistance near $1,000. $920 has been steady support and barring a market wide pullback, it should continue to hold. If GOOGL can clear $960, that too could become support going forward.

Traders could buy GOOGL stock now, cutting losses should a $960 breakout fail. If that’s the case, buying a pullback into support at $920 would be optimal, with losses being cut should that level fail to hold.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/trading-googl-stock-cloud/.

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