Amazon, Microsoft Or Google: Which Is The Best Play On Surging Cloud Infrastructure Demand?

by Trefis Team
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The Coronavirus pandemic is making people rely increasingly on the Internet to work, learn, shop, and entertain themselves as they spend more time at home. This, in turn, is boosting demand for public cloud infrastructure which allows businesses that range from retailers to video streaming service providers to essentially rent computing infrastructure via the internet, without owning any physical servers of their own. A handful of large companies dominate this space including Microsoft (NASDAQ:MSFT) , Alphabet (NASDAQ:GOOG) , Amazon (NASDAQ:AMZN), and Oracle (NYSE:ORCL), and most popular applications and services ranging from Zoom, Slack, Snapchat, and Netflix rely on their infrastructure at least to a certain extent to power their services. Our indicative theme of stocks offering Cloud Infrastructure Services is up by about 7% year to date, compared to the broader S&P 500 which is down by about 10%. Below, we take a look at how the key names in the cloud infrastructure as a service (IaaS) space have fared.

Amazon (28% YTD return, $1.2 trillion market cap)  Amazon, a pioneer in the cloud IaaS space, has seen its stock rise to all-time highs through the pandemic due to higher demand for both cloud computing services and optimism surrounding its e-commerce operations. Although the AWS division accounted for just 12% of Amazon’s revenues in 2019 (AWS sales were $35 billion), they contributed ~63% of Amazon’s total operating income. This could make Amazon a solid way to gain exposure to the cloud infrastructure space.

Microsoft  (16% YTD return, $1.38 trillion market cap) – The software titan’s fast-growing Azure cloud infrastructure business has been gaining market share, at Amazon’s expense. Although the company does not break down Azure dollar revenues, it indicated that revenues expanded ~59%year-over-year over the last quarter. The intelligent cloud segment, which includes Azure as well as other server products, posted sales of about $39 billion, accounting for about 31% of Microsoft’s revenues in FY’19.

Google (3% YTD return, $940 billion market cap) While Google’s core advertising business is likely to shrink through the pandemic as marketers scale back on advertising budgets, the company’s cloud services operations could emerge as a bright spot for the company.  The Cloud division grew revenues by about 52% over Q1 to $2.78 billion.

Oracle (-0.5% YTD return, $165 billion market cap) : Although Oracle is a smaller player in the cloud space, the company has been significantly scaling up its data center operations, building 20 new data centers by the end of 2020. The company has significant experience in catering to enterprise clients and this could enable it to scale up its cloud operations going forward. Zoom recently signed a deal with Oracle for its core video conferencing service, as demand has been soaring through the pandemic.

Is Microsoft stock significantly overvalued compared to Google? We think so! View our dashboard analysis: Google vs. Microsoft: Microsoft’s 4x Price Rise Won’t Last for underlying numbers and rationale.

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