But to keep up the growth, the company will need to find new sources of meaningful revenue. While the ad market is enormous – and digital ads remain in a non-cyclical uptrend – ads are really not enough to sustain Alphabet’s growth. After all, other companies like Facebook (NASDAQ:FB), Snap (NYSE:SNAP) and even Amazon (NASDAQ:AMZN) are getting large portions of the ad pie.
The cloud does look like a pretty good opportunity – and should be a positive catalyst over the long-term for GOOGL stock.
But the company’s primary strength has been in consumer internet apps. That does not necessarily translate too well to business and enterprise customers, who require a completely different sales and marketing approach.
But Amazon was in a similar position when it launched AWS, its cloud business. The company, however, was able to leverage its massive software infrastructure and growth capabilities.
Google has similar advantages.
Ramping Up for the Cloud
Then why hasn’t Alphabet’s cloud unit been able to get much traction? I think a big reason is that it has not been a strategic priority for the company. Instead, Google has been mostly focused on mobile, video and AI (artificial intelligence).
Yet during the past couple of years, the company has certainly gotten more serious about the cloud. And that should be very good news for GOOG stock.
About a year ago, the company hired Thomas Kurian, who was formerly the president of product development at Oracle (NYSE:ORCL), to head its cloud unit. He has a deep background in enterprise software like databases, middleware, ERP (Enterprise Resource Planning), supply chain and CRM (Customer Relationship Management). That kind of experience will certainly be essential.
While at Google, Kurian has already made some savvy moves. He has been hiring top-notch talent who have experience with sales and support on a global basis. For example, he has recruited: Robert Enslin, the leader of the cloud business group at SAP (NYSE:SAP); Amit Zavery, the executive vice president of Oracle’s cloud unit, and Kirsten Kliphouse, an executive with Microsoft (NASDAQ:MSFT).
Kurian has also been an aggressive dealmaker. For example, he has been striking alliances with companies like VMware (NYSE:VMW), Wipro (NYSE:WIT) and DXC Technology (NYSE:DXC). Then there was his $2.6 billion acquisition of Looker, a major player in the BI (business intelligence) market. According to a blog post from Kurian: “The addition of Looker to Google Cloud will help us offer customers a more complete analytics solution from ingesting data to visualizing results and integrating data and insights into their daily workflows. It will also help us deliver industry specific analytics solutions in our key verticals, whether that’s supply chain analytics in retailing; media analytics in entertainment; or healthcare analytics at global scale.”
The AI Factor
AI has already been a catalyst for Google stock. After creating an AI-based platform called TensorFlow, the company has become an innovator in the space. Google has also made a host of AI-oriented acquisitions, including DeepMind, which has made great strides in pushing the boundaries of AI. GOOG has also hired some of the world’s top AI researchers.
AI will certainly be a must-have for cloud providers, as many companies are looking at ways of monetizing their data.
So Google’s cloud unit can offer a plethora of helpful AI services, including machine learning, deep learning, NLP (Natural Language Processing) and computer vision.It can also provide high-end hardware access, data labeling and model training.
The Bottom Line on Alphabet Stock
For the owners of GOOG stock, it’s encouraging that there are clear signs that the company’s cloud strategy is working. Last quarter, the company announced a partnership with the Mayo Clinic to securely store data used to help diagnose diseases and conduct clinical research. It also made notable cloud deals with companies like the National Australia Bank, Deutsche Borse Group, and Macy’s (NYSE:M).
Granted, for Alphabet stock to climb, the company must take multiple steps to improve its cloud unit. After all, Amazon and Microsoft do have significant leads in the cloud wars.
But Google has the right capabilities to make a play for the opportunity, as well as $121 billion in the bank. More importantly, the cloud market is massive, with room for multiple operators. Spending on the cloud will hit $331 billion by 2022, according to research from Gartner .
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.