Fifteen years ago, if somebody asked you what’s new in the cloud you probably would have looked to the sky, but with the advent of the iPhone in 2007, and an incredible tectonic shift in technology over the past decade or so, cloud computing is ubiquitous and growing bigger and faster every single day. Whether it’s actual computing, storage, gaming, streaming of content, artificial intelligence or a host of other items, the cloud is here to stay, and three mega-cap technology companies dominate it.
A new Jefferies research report recaps the firm’s recent technology conference, noting that several of the top internet and software companies in attendance stressed the importance of using multiple cloud platforms to avoid what they call “lock in,” as well as to get better pricing.
Given the enormity of what is required to be a big player in the cloud, it takes the massive resources of huge technology companies.
For those not exactly familiar with the terminology, note that cloud computing is a method for delivering information technology (IT) services in which resources are retrieved from the internet through web-based tools and applications, as opposed to a direct connection to a server.
Three well-known technology companies dominate cloud computing, and all are driving their top and bottom lines even higher with the huge presence. Two are rated Buy at Jefferies, and while one is actually rated Underperform, that could just be because the stock has had a huge run over the past year.
This absolute leader in online retail and dominant player in cloud storage business remains the top pick on Wall Street. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers.
The company serves developers and enterprises through Amazon Web Services, which provides computing, storage, database, analytics, applications and deployment services that enable virtually various businesses. AWS is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market.
Jefferies notes that despite hot and ruthless competition, the company is still seen as having the best-in-class technology in the cloud, but that this also bodes well for the competition.
Jefferies rates the stock a Buy, with a massive $1,950 price target. The Wall Street consensus target is $1,672.93, and shares traded Monday morning at $1607.85.
This global tech giant continues to expand, and while search is king, the cloud presence is growing fast. Alphabet Inc. (NASDAQ: GOOGL) is focused on key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products. It generates revenue primarily by delivering online advertising and by selling apps and contents on Google Play, as well as hardware products. The company provides its products and services in more than 100 languages and in 190 countries, regions and territories.
Alphabet offers performance and brand advertising services. It operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.
Google recently demonstrated its AI ecosystem leadership at Google IO and noted that TPU 3.0 processing power is a potential ecosystem advantage. Google Assistant reach is now on 500 million devices, with the focus turning to facilitating user engagement. In addition, Waymo, which is the only company to have fully driverless vehicles on the road today, is progressing with trials in Phoenix, and outside partnership interest suggests that monetization is rapidly approaching.
Jefferies noted that Google cloud tends to be preferred by start-up companies and what they term as more “tech savvy” enterprises.
Jefferies rates the stock a Buy with a $1,360 price target. The consensus estimate is $1,254.30, and shares were trading at $1,114.75.
This top old-school technology stock has posted all-time highs this year and has a massive $138.6 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) continues to find an increasing amount of support from portfolio managers, who have added the software giant to their holdings at an increasingly faster pace all of this year and last. The cloud was big in the recent earnings report, which was outstanding.
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. Analysts also maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users. Jefferies notes that Azure tends to be preferred by larger enterprises with bigger on-premise IT footprint for the hybrid cloud.
Shareholders receive a 1.72% dividend. Jefferies somewhat surprisingly rates the stock Underperform, with a very low $75 price target. The consensus price objective is $109.26., and shares were last seen at $98.35.
These three mega-cap technology behemoths rule the cloud and probably are destined to continue, as the barriers for entry at the level they are at are absolutely gigantic. The great thing for investors is that cloud computing is only one part of the large business models for all three, and they compete on far different levels productwise.