What This Means for Amazon Stock
Over the last six years, Amazon.com, Inc. (NASDAQ:AMZN) played out a careful gambit to draw in big clients at its cloud computing arm. What was at stake, you ask? Nothing more or less than the value of Amazon stock (AMZN).
This may sound overly dramatic to the average Amazon user, but anyone holding AMZN stock better pay attention. Cloud computing isn’t a random tidbit of Amazon’s business. It is the cash cow that enables Amazon to keep growing and expanding.
Without “Amazon Web Services” (AWS), the company’s valuation would take a serious hit. That’s why it is such good news that the gambit paid off. AMZN stock scored high-profile clients like General Electric Company (NYSE:GE) and Netflix, Inc. (NASDAQ:NFLX), while also signing partnerships with the likes of salesforce.com, inc. (NYSE:CRM).
Although the early success of AWS came from startups, corporate clients represent huge paydays. However, bigger institutions are slower to adapt. Only 5%-10% of corporate workbooks are on the cloud, but that number is expected to blossom in coming years.
Amazon, International Business Machines Corp. (NYSE:IBM), Microsoft Corporation (NASDAQ:MSFT), and Google (owned by Alphabet Inc (NASDAQ:GOOG) saw this shift years ago. They all began vying for big contracts, albeit through different avenues. (Source: “Amazon Cloud Isn’t Just for Startups Anymore,” Fortune, November 29, 2016.)
Amazon and Google focused on public cloud platforms, while Microsoft and IBM offered a mix of private and public clouds. The latter group believed some clients would prefer to keep a portion of their data on-site for security purposes.
After a few years of losing big contracts, Amazon and Google have seen the wisdom of mixed offerings. They are rushing to catch up in that department.
Nonetheless, some industry insiders say that 30% of Amazon’s clients are large corporations. They contend that the company is just lowering expectations so it can move under the radar.
Amazon hopes that competitors like HP Inc (NYSE:HPQ) and IBM will be late in realizing that their business is under siege. If Amazon is truly pulling off this kind of stealth attack, it would mean that the guidance for AWS earnings is lower than it should be.
This could result in a pop in Amazon stock once investors move to correct the price. AMZN stock is currently trading at $750.57.