Oracle vs. Amazon
Cloud computing is one of those emergent industries that gets a ton of play in the press, and for good reason. The ability to greatly magnify your computing power by using the increased connectivity that our modern Internet provides is a surefire way to get the most out of your business.
As more companies begin to realize that the future is in the cloud, others have begun to develop the platforms, software, and infrastructure that powers cloud computing. And this leads us to the cloud computing leaders: Amazon.com, Inc. (NASDAQ:AMZN) and Oracle Corporation (NYSE:ORCL). Or, more importantly for investors, Oracle vs. Amazon stock.
Even though these two companies have become cloud computing leaders in their own right, they are not comfortable sharing that mantle with each other.
Amazon and Oracle have found themselves locked in a bitter rivalry of sorts, all in an effort to become the dominant force in the cloud computing space.
So here’s the question: Oracle vs. Amazon stock: where to invest?
Cloud Computing Leaders
It’s important to understand the cloud computing industry and where Oracle and Amazon stand before you go and start buying up shares.
First, the industry as a whole is growing rapidly. Parsed out into three distinct offerings—Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS)—this is one of those sectors that sees strong growth in the coming years, which is great for both companies, no matter where you fall in the Oracle vs. Amazon divide.
Cloud IaaS alone is expected to reach as high as $173.0 billion in 2026, up from $25.0 billion in 2015. (Source: “Roundup Of Cloud Computing Forecasts And Market Estimates, 2016,” Forbes, March 13, 2016.)
According to the Synergy Research Group, operator and vendor revenues across six cloud services and infrastructure segments reached $148.0 billion, having grown by 25% year over year for the four quarters through September 2016. (Source: “2016 Review Shows $148 billion Cloud Market Growing at 25% Annually,” Synergy Research Group, January 3, 2017.)
Again, we see massive growth in this already multi-billion-dollar industry, which is, in and of itself, a rarity.
And when it comes to cloud computing leaders, Amazon leads the pack.
“Amazon Web Services” (AWS), which runs Amazon’s cloud computing, netted $14.0 billion in revenue last year. It also logged a 46% year-over-year growth rate, outpacing the other parts of the business and accounting for nearly nine percent of Amazon’s total revenue on the year. (Source: “The 4 Most Interesting Things From Amazon’s Cloud Extravaganza,” Fortune, April 19, 2017.)
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Even with such high growth rates, Amazon Web Services didn’t match up to the projected $3.6 billion in revenue, falling just shy, at $3.56 billion. (Source: “4 Things You Need to Know About Amazon’s Business Right Now,” Fortune, February 3, 2017.)
These are big numbers we’re talking about here, with huge growth potential in the sector. The multi-billion-dollar industry is one that has seen newcomers try to wrestle away what has, so far, been under the heel of the dominant Amazon.
Google—owned by Alphabet Inc (NASDAQ:GOOG)—and Microsoft Corporation (NASDAQ:MSFT) are two of the top competitors that have sought to dethrone Amazon Web Services with their own offerings. Another is, of course Oracle, but they’re a little further off in size, which I’ll discuss in more detail later.
Synergy Research Group also released another study that showed AWS holding a dominant market share of over 40% in the public cloud services market, while its next three combined competitors account for about 23% of the IaaS and PaaS. The remainder of the companies in the top 10 all showed slowing growth, with the exception of two: Alibaba Group Holding Ltd (NYSE:BABA) and Oracle.
So, Oracle vs. Amazon is looking more like a David vs. Goliath battle. And that’s true. But Oracle is a young upstart that has shown impressive growth, and believes that it can catch up to the current king.
Which brings us to the future of Oracle stock and Amazon stock.
AWS vs. Oracle IaaS
The two companies have not been shy in making their rivalry in the IaaS space very public. Oracle Executive Chair Larry Ellison fired shots at Amazon, claiming that Oracle’s overhauled cloud service is better and cheaper compared to AWS, during a conference call with analysts.
AWS CEO Andy Jassy did not take the comments lying down. Jassy called the database market (Oracle generates the bulk of its sales through the vending of databases) a “lonely place for customers.” He went on to say that businesses “have been locked into companies that aren’t so customer friendly.”
“I think customers are sick of it,” Jassy said. He even compared the two companies directly. “When you look at the cloud, it’s not like being locked in by Oracle.”
Being “locked in” refers to using a provider’s applications on the cloud and then effectively being stuck with that company, unable to migrate your data without incurring huge costs or headaches. (Source: “The 4 Most Interesting Things From Amazon’s Cloud Extravaganza,” Fortune, April 19, 2017.)
Both companies are accused of using this method in order to make it more difficult to switch service providers, though both deny it.
It’s a little catty, to be sure, but in the growing industry that is cloud computing, you’d expect to see some mud-slinging from these rivals.
And Oracle, while far behind in market share, is speeding ahead with a fury. The company’s PaaS and SaaS rose a combined 81% in Q2 FY2017, reaching $878.0 million. This marks the fourth consecutive quarter in which Oracle’s SaaS and PaaS combined revenue growth increased. Total revenue, including IaaS, rose 62% in the quarter, to $1.05 billion. (Source: “Oracle Cloud Revenues Surge Again,” Forbes, December 16, 2016.)
Oracle CEO Safra Catz noted that when competitor salesforce.com, inc. (NYSE:CRM) passed the $1.0 billion total revenue mark, its revenue growth rate slowed to 36%, again showing the impressive streak that Oracle stock is on with cloud computing.
With the addition of 2,225 cloud databases, application development, business intelligence, integration, and other PaaS customers in Q2, revenues jumped approximately 600%, according to Oracle co-CEO Mark Hurd.
While the newest addition to its cloud business, IaaS, grew six percent to $175.0 million, the company plans for much bigger gains in the future.
You see, the difference between Oracle cloud and Amazon cloud is mainly one of technology, at least according to Oracle.
Larry Ellison said at Oracle OpenWorld in September 2016 that the next generation of Oracle infrastructure services will provide twice the memory, four times the storage, twice the computing power, and 10-times the input/output speed compared to AWS.
And that’s where we see the final, most important divide. The two companies have a difference in strategy.
Take, for instance, data centers. In order to run all these cloud computing applications, you need data centers to store the information and provide functionality. Dealing with such absurd amounts of data as these companies are, they need to buy a lot of real estate dedicated to cloud usage.
While Amazon, along with Google and Microsoft, spent a combined $31.0 billion to extend the company’s data centers around the world, Oracle spent a relatively small $1.7 billion, but the company higher-ups don’t think that’s a problem.
Hurd told Fortune that Oracle’s superior technology would win out the day, regardless of the mismatch in spending.
“If I have two-times faster computers, I don’t need as many data centers,” said Hurd.
“If I can speed up the database, maybe I need one fourth as [many] data centers.”
I can go on and on about how tech drives this.
Hurd further said, “Our core advantage is what we’ve said all along, which is that it’s about the intellectual property and the software, not about who’s got the most real estate.”
So, in the cloud computing leaders arms race, Oracle is looking for quality to beat out quantity.
Oracle vs. Amazon Stock: Where to Invest?
The final, all-important question for investors is where to put your money.
Well, here’s the thing: Oracle is poised for huge growth in the cloud computing sector. The company might even be able to catch up to Amazon Web Services, although that is by no means a given.
But here’s what is a given: AWS is the dominant cloud computing service, continues to grow, and is connected to one of the greatest tech companies of all-time.
While Oracle is no slouch, Amazon has so many things going for it besides AWS growth, it would be hard to recommend Oracle stock over Amazon stock.
AMZN stock has grown over 21% in 2017 alone, and 46% over the past 12 months.
ORCL stock has also had good numbers—16% in 2017 and nearly 10% over the past 12 months—but it simply can’t compare when considering Oracle vs. Amazon from a holistic perspective.
Amazon is a winning stock, no matter what industry you’re looking at it from. Amazon Web Services is merely another example of that company’s dominance. Oracle is a good investment too, in terms of its cloud computing potential. But, when it comes down to it, it’s often not smart to bet against Amazon stock.