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More Cloud Revenue Is Critical to Moving Google Stock up Again

Ad revenue is under attack, so the cloud needs to be a catalyst for Google stock

Alphabet (NASDAQ:GOOGL) was built on Google, a free search service that now allows anyone to find anything from anywhere. Google stock has been a reliable investment for a while, but things are changing.

More Cloud Revenue Is Critical to Moving Google Stock up Again
Source: rvlsoft / Shutterstock.com

Google is the greatest miracle of the 21st century. So why is Alphabet doing everything it can to run away from it in favor of paid services, especially its Google Cloud platform?

The answer is, “The government.” Regulators are treating Google as a piggy bank, levying huge fines to media cheers. Politicians are using Google as a punching bag, demanding that it either be broken up or treated as a utility.

In the face of all this, there’s a sense of urgency about the company’s Google Cloud efforts. Getting people to pay for your work gives cash flow the protection of contracts and business alliances.

The Cloud and Google Stock

The hiring of Thomas Kurian, formerly with Oracle (NASDAQ:ORCL) to lead the cloud unit has been followed by a host of others. The company’s cloud acquisition budget keeps growing.

In June Google Cloud spent $2.6 billion for Looker, an analytics start-up. Kuiran is now reportedly kicking the tires on Nutanix (NASDAQ:NTNX), a $4.3 billion seller of storage hardware and software. Nutanix’ chief development officer has already left for Google after a revenue miss.

It’s not helping Google stock, though. Google is still stuck in third place in cloud market share, behind Amazon (NASDAQ:AMZN) Web Services and Microsoft (NASDAQ:MSFT) Azure. The market is growing at 40% per year, but Amazon and Microsoft are winning half the business, leaving Google with just an 8% share.

What’s happening is “hybrid multi-cloud.” It’s why IBM (NYSE:IBM) bought Red Hat. Enterprises are putting all their computing eggs in the cloud basket, rebuilding data centers based on cloud standards, and looking to arbitrage public clouds to reach their customers.

Google’s hybrid cloud platform is called Anthos. Analysts think it could be a $20 billion business within two years.  It’s growing at over 50% per year.

But rivals are growing just as fast.

Politics and Google Stock

Google Cloud was built on cash flow from Google services, but they are becoming more trouble than they’re worth.

State and federal agencies have begun an antitrust inquiry into Google. They aim to control the search giant the way Microsoft was controlled starting in the 1990s. That nearly destroyed Microsoft, until the shackles came off and the paid cloud opportunity appeared.

A  $170 million settlement with the Federal Trade Commission over Google’s collection of young users’ data at YouTube is just the tip of the iceberg.

The European Union alone has imposed $9.3 billion in fines over various antitrust and privacy violations.  It’s now going after Google’s job search tool.

Newspaper columnists call such fines “peanuts.” The Federal Trade Commission is now saying a break-up order is possible.

Breaking up Google is partly behind the rise of Elizabeth Warren. Even on the right, anyone who switches to Google’s side of the political argument is roundly condemned.

The Bottom Line on Google Stock

Politicians are now an existential threat to the cloud’s free services.

Those services were built with cash flow from advertising. They were so successful they destroyed a succession of media and retailing industries. Those industries now demand revenge, and they control the political agenda.

This makes it essential that Google boost its hybrid cloud market share quickly before the cash flow is taken away. But so far Google Cloud is racing as hard as it can just to keep its place.

As big as Google Cloud’s recent moves have been, it may be that bigger, costlier moves are called for.

Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT and AMZN.

Article printed from InvestorPlace Media, https://investorplace.com/2019/09/cloud-revenue-critical-google-stock-up/.

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