The 2 Big Winners as Enterprise Technology Sees Massive Shift

Print Email

We have written often on the titanic change in enterprise technology, especially the huge migration to the cloud for computing, storage and enterprise functions, so a part of overall technology needs in this fast changing world. It’s also becoming very obvious that former infrastructure information technology incumbents are losing their previous market share within their specific sector niche.

A new report from Deutsche Bank’s highly respected analyst Karl Keirstead notes the huge change in tone at this year’s Amazon Web Service (AWS) summit, where the company met with three AWS premier consulting services partners. The bottom line is large enterprise is migrating to the cloud, and two companies appear to be dominating the activity. Both are rated Buy at Deutsche Bank.

Amazon

This company not only is the absolute leader in online retail, but it is also a dominant player in cloud storage business. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites, which primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers. In addition, the company serves developers and enterprises through AWS, which provides compute, storage, database, analytics, applications and deployment services that enable virtually various businesses.

AWS is the undisputed leader in the cloud now, and Deutsche Bank sees the company expanding and moving up the enterprise information value chain and addressing a larger total addressable market. The company has had numerous recent product announcements, including Aurora for relational database engine, Quicksight for business intelligence and AWS Database Migration Support Service.


Many analysts also think that AWS will continue to be a huge driver of Amazon’s operating profit growth, growing an astonishing 55% year over year in 2016 to $12.2 billion. In the sum-of-the-parts analysis, AWS is a staggering $202 per share, almost a third of the current dollar amount.

The Deutsche Bank price target for the stock is $800, and the Thomson/First Call consensus price objective is $732.78. Shares closed on Wednesday at $632.99.

Microsoft

This is another top technology stock that gives investors a degree of mega-cap tech safety, and it has a massive $102 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) continues to find an increasing amount of support from portfolio managers, who have been adding the software giant to their holdings at an increasingly faster pace all of this year.

Numerous Wall Street analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service. Some analysts, Deutsche Bank included, maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users. Keirstead believes that Amazon has zero interest in a race to the bottom with Azure in pricing.

Other top analysts believe the company continues to make steady progress with its cloud transition and expect Office 365 and Azure to be solid contributors to top and bottom line for the next several years. While unlikely to snag the top spot from Amazon, it could add huge incremental revenue for years to come.

Microsoft investors receive a 2.65% dividend, and the forward valuation remains compelling. Deutsche Bank has a $65 price target, and consensus target is $58.89. The stock closed Wednesday at $55.59.

These two leaders are hardly going to cede much ground to the competition, so pricing may be an issue going forward. That said, these companies should remain the clouds top purveyors for years to come.