AMZN Stock: Amazon.com, Inc. Wins the Cloud Computing Race…Again
This Could Be Huge for AMZN Stock
According to Gartner’s “Magic Quadrant” report, Amazon.com, Inc. (NASDAQ:AMZN) is still the undisputed king of cloud computing. Its continued dominance suggests that AMZN stock will keep moving “up and to the right” for the foreseeable future.
In fact, Amazon will become the first trillion-dollar company if its share price keeps rising. The company’s growth has been nothing short of spectacular this year—so much so that CEO Jeff Bezos became richer than Warren Buffett. Yes, the Warren Buffett.
Bezos’ avalanche of new wealth came directly from a surge in AMZN stock. Shares of the Internet giant have risen 58.89% since its February lows, sending the firm’s market cap to a whopping $363.13 billion. Needless to say, it’s been a good year for Amazon.
But when stocks rise as quickly as AMZN stock, investors are left in an awkward position. If they think the stock has hit a ceiling, they can cash in their chips. But if they’re wrong, they could lose out on massive upside potential. There’s risk either way.
So, to get a better sense of where AMZN stock is headed, I like to take a look under the proverbial hood of the company. I like to ask the question, is Amazon’s technology better than its competitors today? If the answer is yes, then its share price is going to be higher tomorrow.
Based on years of experience, I can tell you this is the best way to forecast a company’s share price. There’s no shortcut to guessing the future value of AMZN stock; we simply have to examine the company’s actual business to understand where its share price is headed. Luckily for AMZN stockholders, Gartner just said something incredible about Amazon’s business—Gartner said Amazon is still the king of cloud computing. (Source: “Amazon and Microsoft Are Running One and Two in Two-Cloud Race,” Fortune, August 4, 2016.)
A Massive Tailwind for AMZN Stock
For those who’ve never heard of Gartner, it’s a research firm that publishes an annual report called “Magic Quadrant.” This report is sacred in the industry because it gives us a real-time analysis of which companies are winning the cloud computing wars.
Leasing out server space has turned into an incredibly profitable business, which naturally means that the area attracts a lot of competition. There’s an estimated $1.2 trillion still up for grabs in this industry, which makes cloud computing a pretty high-stakes game. (Source: “It’s Google’s Time to Shine in Big Business,” Fortune, July 11, 2016.)
Right now, Amazon is the winner.
According to Gartner, Amazon “has the largest share of compute capacity in use by paying customers—many times the aggregate size of all other providers in the market.” (Source: “Amazon and Microsoft Are Running One and Two in Two-Cloud Race,” Fortune, August 4, 2016.)
Think about that: even if you add up all of Amazon’s competitors, they would still be several times smaller than “Amazon Web Services” (AWS). Microsoft Corporation’s “Azure” cloud services have made some strong advances, but Azure is still far behind AWS.
Alphabet Inc has also beefed up its cloud offerings, but it hasn’t even entered Amazon’s rearview mirror. AWS is still way ahead in terms of enterprise clients, which is where the big paychecks come from. For instance, Netflix runs its entire business off Amazon’s cloud. Just imagine how much data that is and all of it is being processed by AWS.
No wonder Amazon swept the competition.
That being said, only five percent to 10% of corporate workloads have already been moved to the cloud. The remaining clientele is worth approximately $1.2 trillion collectively, meaning there’s space for more than one company to succeed in this business.
Amazon Web Services is almost certainly one of them. It’s captured this award from Gartner year after year and there’s no reason to believe it’ll slow down. Considering that AWS is continuing to dominate, it’s safe to say AMZN stock will continue to rise.
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