Investing in cloud computing – how, when, where?
In its simplest form, the cloud is basically virtual real estate space. As businesses started to move away from keeping manual records to “computerizing” themselves, they also needed increasingly large amounts of hardware and a host of software applications to keep everything going. With cloud-based services increasing exponentially, there has never been a better time to invest in cloud companies, but it’s important to make sure you do so cautiously.
By owning stock in a company offering cloud-based services, you will not only be able to follow the latest trends but also have the opportunity to make money from the extensive growth of this industry. Before getting involved in cloud computing investing, however, it’s important to understand what is involved, what is driving the growth, and the best way to plan your cloud investments.
Among the larger companies in this space, Amazon was the first with its Amazon Web Services (AWS) division. In short, the ecommerce giant took all the excess space on its servers, created virtual servers and started renting them out for a monthly fee. Conceptualized in 2003, AWS first rolled out its service to the public in 2006, when it immediately became a mass hit with developers.
Once AWS started to gain traction, other cloud players like IBM , Microsoft, Rackspace, Oracle and many more companies jumped in. Today, the entire cloud industry is estimated at $110 billion and growing at a rapid 28% year over year.
Amazon Web Services
As of the most recent quarterly earnings report , AWS revenues touched $2.57 billion, giving it a clear runway to meet and beat $10 billion in revenues for the 2016 fiscal. The group is also infinitely more profitable than Amazon’s entire retail business and brought in an operating income of $604 million on the $2.57 billion gross revenue.
That kind of margin allows AWS to be extremely aggressive on pricing, and so far it’s reduced pricing no less than 51 times. That’s what gives it the edge over smaller providers and, to an extent, over major competitors like IBM, Microsoft and even Google.
IBM is a seasoned player in the cloud, but it was only in the past four years that it’s really pushed the cloud, making waves as the largest provider of hybrid cloud solutions in the world. This past quarter, IBM reported cloud revenues of $10.8 billion on a TTM basis, putting it ahead of AWS’s $8.92 billion.
At 1.9% growth rate for its Technology Services and Cloud Platforms on a constant currency basis, IBM’s growth isn’t fast, but it has managed to take it not only to the first place in hybrid cloud solutions, but even rival AWS’s dominant position in cloud infrastructure.
Office 365 is currently the star of Microsoft’s cloud lineup, and with Azure boasting very good growth and Azure Stack now focused on enterprise clients’ hybrid needs, the cloud segment looks like a promising path for Microsoft. Also, the numbers reveal a healthy growth rate of 120%+ for Microsoft Azure, its infrastructure offering, and an annualized run rate of $10 billion as of third quarter 2016.
The company has been late to the cloud race despite owning the technology for several years now. It was only at the beginning of this decade that Google launched its GCP (Google Cloud Platform), and it has a long way to go in terms of revenues. At the end of the last fiscal, Google cloud revenues were still a ways from hitting $1 billion.
The investment strategy
From an investment perspective, don’t think about investing in a single company. Think about this as an industry with several big players. You could invest in 2-3 of them equally , so your portfolio has both strength and balance within the cloud industry. As one company takes the lead, invest more in that stock so you’re always ahead of the game.
When selecting cloud-based investment opportunities, it’s also important to exercise caution and avoid companies that simply claim they are cloud-based. Take the time to review exactly what it is that the company offers and ensure that they are not simply using industry jargon in order to leverage market interest. Given the rapid growth of cloud-based computer services, it is even more important to research the leading companies that are currently involved in the cloud.