CLoud computing is a transformational technology that is helping companies take their operations online, whether analyzing data or building machine learning models. It enables collaboration between teams working in different locations and connects organizations across borders like never before.
The industry continues to expand as companies innovate and find new ways to apply the technology, driving growth. It is estimated that the cloud computing market could be worth US$483 billion in 2022 and triple to over US$1.5 trillion by 2030.
It’s a significant opportunity for these five companies that offer cloud services to their customers. That’s why their shares are a buy right now.
Cloud services are probably not the first thing most people think of when they hear the name Amazon (NASDAQ:AMZN). After all, it’s best known for being the largest e-commerce company in the world. But its cloud segment, Amazon Web Services (AWS), leads the industry and is the earnings engine behind the entire company.
Amazon started offering online storage services in 2006, making it one of the oldest players in the cloud business. Since then, AWS has grown and offers hundreds of different services, including web hosting, data analytics, and advanced technologies like artificial intelligence (AI) and machine learning.
AWS generated $62 billion in revenue in 2021, accounting for 13% of Amazon’s total $470 billion in revenue. But the profitability picture is reversed, because while AWS accounted for only a minority of Amazon’s revenue, AWS delivered 74% of the company’s total operating profit for the year.
Along with its cloud services, Amazon continues to diversify its business into new areas like advertising and electric vehicles, making it a great diversified long-term bet for investors.
While Amazon Web Services operates at the rich end of the cloud industry, DigitalOcean holdings (NYSE:DOCN) has found an advantage in the smaller end of the market. It focuses on small and medium-sized businesses and beats its competitors in terms of price, service, and ease of use.
DigitalOcean simplifies virtual machine provisioning with a range of one-click features, and its services are up to 41% cheaper than AWS, depending on configuration. And at $0.01 per gigabyte per month of bandwidth, it’s 80% cheaper than its closest competitor. Whether you’re building apps, managing databases, or need storage, DigitalOcean’s monthly plans range from $0 to $15 as a starting point, making them affordable for even the smallest of startups.
The company serves over 609,000 businesses today, with its revenue per customer hitting an all-time high of $65.87 in 2021. DigitalOcean estimates that its annual market opportunity will be $145 billion by 2025. Given that it only made $429 million in revenue last year, it has a long way to go for growth.
The third cloud computing stock investors should buy right now is splunk (NASDAQ:SPLK). It is at the forefront of machine learning and is once again focused on bringing its suite of advanced technology to the cloud for quick and easy access from anywhere. Splunk currently serves 96 of the Fortune 100 as demand for a technological edge increases among large enterprises.
Splunk customers use machine learning in different ways. Ecommerce companies use it to monitor sales channels, predict technical issues, and reduce downtime. Manufacturers integrate it into the operations and equipment of critical assets to help it capture mountains of data used to improve efficiency and monitor potentially costly outages. Overall, machine learning is an incredibly valuable tool that will be further enhanced by the cloud.
Splunk’s cloud revenue growth far outstrips overall revenue growth. Cloud revenue grew 70% in just ended fiscal 2022, compared to just 19% for total revenue. Cloud revenue also continued to grow, accounting for 35% of Splunk’s total revenue of $2.67 billion, compared to 24% last fiscal year.
The company recently appointed a new CEO with extensive experience in the software-as-a-service (SaaS) space, who is expected to help drive growth going forward.
alphabet (NASDAQ: GOOD)(NASDAQ:GOOGL) is best known as the parent company of Google. While search remains their flagship, Google Cloud has emerged as a formidable player in the cloud industry, offering a range of tools including documents, storage, and even a low-code artificial intelligence platform.
The cloud-based Vision AI platform can be trained to scan images to identify objects, faces and even locations, and offers advanced text and speech recognition tools in addition to hosting. But Google Cloud also offers a portfolio of essential services, including virtual machines and data analytics, which puts it alongside its larger competitors like Amazon Web Services.
Alphabet is a $1.7 trillion company that’s still generating amazing growth. In 2021, it grew revenue 41% to $257 billion, and while the cloud segment accounted for just 7.4% of that number, it delivered 47% growth, outpacing the company as a whole.
Alphabet’s investment story is clearly about more than just cloud services — it also gains access to its burgeoning search business and even its video platform YouTube. It truly is a company of the future that has the quality to anchor any portfolio.
The last cloud computing stock investors should buy right now is Microsoft (NASDAQ:MSFT). While Microsoft is best known for its Windows operating system and Office 365 document suite, used by billions of people worldwide, its top-grossing segment is now the Azure segment. Azure has fought a fierce battle with AWS for the top spot in the industry over the past several years, although Microsoft has often come second.
But owning Microsoft stock gets you even more than the impressive assets mentioned above. Although the company is a software specialist, it has a strong hardware footprint with its Xbox gaming platform and its Surface line of notebooks and tablets. Both are billion-dollar brands in their own right, and Microsoft’s gaming business could see a huge boost if it completes its $68 billion acquisition Activision Blizzardwhich is currently being examined by the government.
In the cloud segment, Microsoft’s Azure platform forms the basis. It offers over 200 products used by a variety of industries, from gaming to financial services to healthcare. In the first half of fiscal 2022, Microsoft’s intelligent cloud segment generated revenue of $35 billion, representing growth of 28% compared to the corresponding period in fiscal 2021, outpacing Microsoft’s overall revenue growth of 21% .
Owning Microsoft stock offers diversity in itself and is the perfect long-term opportunity to capitalize on the burgeoning cloud industry alongside a group of other world-class technology companies.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool owns shares of and recommends Activision Blizzard, Alphabet (A shares), Amazon, DigitalOcean Holdings, Inc., Microsoft, and Splunk. The Motley Fool recommends Alphabet (C shares). Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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