2020 continues to see the race for cloud computing unfold in dramatic fashion. Major players such as Amazon Web Services (AWS) continue to grow in spite of the huge economic disruption caused by COVID-19 and the worldwide lockdowns. Determining the “winner” of global cloud services, however, is not straightforward. After all, there are multiple variables distinguishing the likes of AWS, MS Azure and Google Cloud on the one hand and the likes of Hewlett-Packard Enterprise and VMware (which deal in multi-cloud hybrid deployments) on the other.
Then there are companies such as Salesforce, Oracle and Adobe which offer infrastructure and/or database-as-a-service. In this industry report, our investment team here at Bure Valley Group offers some of the latest key information and trends regarding this important and promising sector. We focus on three prominent players – AWS, MS Azure and Google Cloud.
Key trends
Before diving into the details of these three growing companies, it’s important to highlight some of the wider trends which have affected cloud-based businesses in 2020:
- COVID-19. Of course the pandemic has dominated news, markets and economies since at least January 2020. Workers across the globe have moved to working from home as they self-isolate, using video conferencing services such as Zoom. Online shopping (e.g. Amazon) has also increased as customers have been restricted in visiting highstreet shops. Services such as Google Hangouts and MS Teams have also benefited as people have become more reliant on cloud infrastructure and services.
- Multi-cloud. Many businesses see this as an aspiration and a great selling point. Here, more than one cloud deployment (of the same type) is sourced from multiple vendors, allowing greater flexibility and integration.
- Data acquisition. Customer “ stickiness is key to any growing business. Cloud services have not been slow to identify the importance of resident more corporate data within a cloud, including personalised experiences and analytics.
- Artificial intelligence. This is really shorthand for a range of innovations which continue to unfold including the Internet of Things (IoT), edge computing and analytics. These are likely to become important differentiators amongst the key players which we turn to now.
AWS
A subsidiary of Amazon, it is still not widely known that AWS provides the bulk of Amazon’s profits in 2020 – not through retail or subscriptions (e.g. Audible). Interestingly, in some cases the business has lost money on international sales in some places (e.g. India), yet AWS has reported 33% market share in Q2 2020. The entire cloud market is currently estimated at around $111bn, and AWS can rightly claim that their share of this equates to the combined share of its three largest competitors.
MS Azure
Given the dominance of AWS it might seem strange to devote so much attention to the likes of MS Azure. Yet data shows that MS Azure and Google Cloud have been the main beneficiaries of increased growth in the overall cloud market in recent years. In 2019, for instance, the cloud industry grew by 42% – with AWS seeing a $2.3 billion YOY increase. Yet Azure and Google Cloud saw their percentages increase by a greater amount. In 2020, moreover, MS Azure has done particularly well with 3% growth in market share compared to Q1 (17%) and Q2 (20%). Many attribute this to the rise in businesses across multiple industries moving to online video conferencing, believing Azure to be more secure and compatible with their office systems (e.g. Microsoft Outlook).
Google Cloud Platform (GCP)
Q1 and Q2 earnings for the “big three” are now in for all of the “Big Three” in cloud services. Google Cloud – which includes Google Compute Engine and G Suite – has reported 43% growth in Q2 (year over year), amounting to $3bn. Alphabet’s revenue has also shown an annual increase of 2%, now up to $38.3bn. The growth is down compared to Q1, however, which saw a 52% increase on the previous year. Google CFO Ruth Porat attributes this primarily to pricing changes in the G Suite rather than a fundamental issue with the cloud service as a whole.
Google has moved forward in great strength regarding its infrastructure and data and analytics offerings. In July 2020, for instance, saw the launch of a new product which allows customers to run its BigQuery data warehouse on multiple cloud platforms – including AWS and Azure. Whilst it still lags behind these two in global market share, Google Cloud is continuing to innovate and hire international-renowned talent which puts it in a strong position for future growth.
Implications for investors
Clearly, cloud computing is showing little sign of slowing down. COVID-19 has exposed many businesses to the realisation that they need to adapt their business models to the online space, placing more reliance on Cloud Services which enable functionality such as video conferencing. This suggests that this industry is likely to be a strong investing theme in the portfolios of many company investors for years to come. Even without the pandemic, cloud computing continues to change the way that businesses across industries and sectors – both large and small – approach their information technology (IT) infrastructures. Cloud computing stocks are also likely to be major beneficiaries as other emerging technologies rely on their solutions such as driverless vehicles (e.g. cars and drones), virtual/augmented reality (VR/AR), robotics and blockchain security. If you are interested in expanding your portfolio into these kinds of exciting spheres of investing, then we invite you to get in touch with us here at Bure Valley and to consider joining our exclusive investor network:
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