Blogs -Here’s Why Microsoft Stock Could Overtake Amazon on Cloud Infrastructure

Here’s Why Microsoft Stock Could Overtake Amazon on Cloud Infrastructure


December 06, 2018

author

Beth Kindig

Lead Tech Analyst

The cloud infrastructure market is expected to reach $83.5 billion by 2021, up from $40.8 billion in 2018. Amazon Web Services was launched in 2006, which means it took twelve years for the infrastructure-as-a-service (IaaS) market to reach $40 billion – but will take only three years for the next $40 billion to accumulate. Therefore, the investment window for cloud infrastructure stocks is far from over.

Microsoft Stock Overtake Amazon Cloud Infrastructure

The IaaS segment is currently Amazon’s most profitable revenue stream comprising 55% of its quarterly operating profit, and is also the top growth-driver for Microsoft at 89%. Considering these are two of the three companies vying for most valuable company in the United States, it’s easy to see why IaaS could be the determining factor on who will remain in this position. AWS has a formidable lead in cloud infrastructure with estimates of $26 billion in sales last year compared to Microsoft’s $10 billion.

However, there was an important strategic acquisition Microsoft completed last month which will narrow its position in second place – and it’s my prediction that this specific acquisition will be a primary driver that will propel MS into first place in the next 2-3 years. Before I discuss the acquisition, I think it’s important to provide an overview of the IaaS segment.

Also Read : Why Microsoft (Not Amazon) Will Win the Pentagon Contract

 

Brief Overview of IaaS Cloud Stocks

Gartner analysis bumped Oracle and IBM from the leader quadrant this year, while placing Google Cloud in third behind AWS and Microsoft. For all intents and purposes, these are the three cloud infrastructure companies remaining for serious stock investors after a period of fierce consolidation. At one point, Amazon had more market share than the trailing 14 cloud infrastructure companies combined. It now has the market share of the trailing 5 companies combined. This reflects Microsoft and Google’s growth as the territory Amazon has forfeited was primarily gained by MS Azure and also Google Cloud Platform (GCP).

AWS, Microsoft and GCP Revenue Trends

AWS has an outstanding lead at 33% of the market, with Microsoft at 13% and Google at 5-6%. These margins are why Amazon posts 40% growth while Microsoft posts 98% growth – there is simply more territory that MS can gain as a second-place participant. GCP claims the most growth because its revenue is small enough to post these gains.

Suffice to say, current revenue is not a solid indicator of who will capture the $40 billion projected growth over the next three-year period. In fact, I believe AWS will have its hardest years ahead as Microsoft’s singular focus has been to grow Azure, and this strategy will be reflected in earnings between 2019-2022. AWS is the most mature provider in this category, but Microsoft has deeper experience with strategic IT dominance. The effort at which Microsoft is driving adoption to .NET CORE and Azure is, surprisingly, not something we see with AWS (more on this below).

To some extent, this reason could easily be explained by Amazon’s ever-expanding focus. The company may be too distracted with growing its e-commerce dominance, such as Prime deliveries and also Prime OTT streaming, plus the Whole Foods acquisition, as well as its plans to disrupt the healthcare industry and the connected home. It’s easy to see how Amazon might lack the focus in strategic investments that the competitive cloud infrastructure market will demand. Microsoft, on the other hand, is putting its entire weight behind IaaS, and the next couple of years will be interesting to see how this plays out.

Also Read : Microsoft Earnings Likely to Prove Cloud Isn’t Slowing Down

 

Microsoft’s Strategic Move to Acquire the World’s Largest Open Source Repository

Microsoft’s dedication to become the cloud infrastructure leader was demonstrated last month with the acquisition of Github for $7.5 billion, which is a repository for developers to upload projects and files. There are 28 million active developers collaborating on GitHub. In other words, every single developer in the world is on GitHub. In fact, GitHub’s user base is larger than the total number of developers globally, which is an impossibility the founder pointed out last year, proving the platform’s omnipresence.

“Git” refers to version control systems, which developer-talk for an open version of all the modifications made to projects (like writing code), that is stored in one central repository. Collaboration and sharing are at the essence of open-source software, and Github provides a social environment for this to occur. There is a ton of innovation which happens here, and almost every developer hosts their code and projects here for the world to see (or even for employers to review during job interviews). Developers can “fork’ a project, or split a project, by creating a new project off an existing one. Or they can issue a pull request to have the original developers of a project incorporate new code.

My newsletter subscribers get this information first. Sign up here.

Ironic is the best word to describe Microsoft’s venture into open source technologies and repositories. At one time, the company was loathed by the developer community for their closed standards, as the Founder Bill Gates adamantly believed software should be proprietary. In the late 90s, leaked documents showed Microsoft had attempted to contain the open source movement, and to prevent Linux from competing with Microsoft software by locking customers into proprietary protocols. (Linux is the free and open-sourced software operating system that launched in the early 90s and Android is built on today; Windows is the anti-thesis to this operating system).

Developers seek open source environments so they can learn from each other, and to support more innovation. Today, AWS excels when it comes to open source development due to being an early supporter of Linux. However, Microsoft is attempting a complete one-eighty by embracing the open-source community, and if MS succeeds, it will pay in dividends for Azure as it goes head to head with AWS.

This venture into open-source advocacy has been planned for some time. Over the last few years, Microsoft became the top contributor on Github with 2 million projects, which helps position Microsoft as an advocate while evangelizing the .NET framework and the .NET CORE that runs on Windows, MacOS, and Linux. Microsoft now claims that 40% of Azure’s virtual machines are running Linux.

Furthermore, MS acquired Xamarin two years ago, the leading mobile application development platform. The tools help developers navigate across the various programming languages required by different platforms, such as iOS and Android on native, web applications, or a mix of both with 75% of the code re-usable. This greatly reduces development time and resources, and also demonstrates that MS is ready to host and support competing operating systems in order to gain on cloud infrastructure.

Takeaway: Microsoft is courting developers because they are a primary decision maker as to which cloud service a company will use. MS Azure’s current customers are enterprise level, such as Fortune 500 companies.  Microsoft’s strength is that most businesses at this level have a significant investment in MS products, and it is easier to go with MS because it is what they know, and the transition is easy as the IT department won’t have to be trained on AWS or Google Cloud.

However, Microsoft’s blaring weakness is open source, and the some 28 million developers that are on smaller teams, and who socialize on Github, are decidedly open source. For $7.5 billion, Microsoft has done what every great company should do – acquire to address your weakness.

Both Xamarin and Github are highly strategic acquisitions. Microsoft paid 25 times the value of Github, which has revenue of about $300 million. Alphabet was also interested in purchasing Github, according to inside sources.

Also Read : Microsoft Stock Price: Technical Analysis

Gains of up to 403% from our Free Newsletter.

Here are sample stock gains from the I/O Fund’s newsletter --- produced weekly and all for free!

+344% on Nvidia

+403% on Bitcoin

+218% on Roku

*as of March 15, 2022

Our newsletter provides an edge in the world’s most valuable industry – technology. Due to the enormous gains from this particular industry, we think it’s essential that every stock investor have a credible source who specializes in tech. Subscribe for Free Weekly Analysis on the Best Tech Stocks.

If you are a more serious investor, we have a premium service that offers lower entries and real-time trade alerts. Sample returns on the premium site include 324% on Zoom, 601% on Nvidia, 445% on Bitcoin, and 4-digits on an alt-coin. The I/O Fund is audited annually to prove it’s one of the best performing Funds on the market with returns that beat Wall Street funds. 

beth

More To Explore

Newsletter

Where the Market is Headed Next

Where the Market is Headed Next

When the market was selling tech last year, the I/O Fund was buying AI leaders. For example, from September 2021 through January of 2023, we initiated 9 buy alerts for NVDA below $210. The last two al

June 08, 2023
https://images.prismic.io/bethtechnology/edb6f4db-e193-45b5-83f3-7524f57e66f7_Apple+Bets+On+The+Emerging+Markets+Growth+Story.jpg?auto=compress,format

Apple Bets On The Emerging Markets Growth Story

The smartphone market continues to be hit hard in q1, with prices down 20% and shipments down 13%, according to Canalys. Despite double digit decline across the industry, Apple delivered marginal grow

June 05, 2023
Nvidia Will "Still" Surpass Apple's Valuation

Nvidia Will “Still” Surpass Apple’s Valuation

My coverage on Nvidia as an AI leader began in 2018 (yes, really – five years ago). Since then, I’ve covered the AI microtrend for this specific stock 27 times on my research site, which is the equiva

May 29, 2023
FAAMG Stocks Trading At Precarious Valuations

FAAMG Stocks Trading At Precarious Valuations

The mega-cap stocks that are known as FAAMG reported earnings recently. These names are driving the market higher, especially Microsoft and Apple. In fact, the percentage of Microsoft and Apple’s comb

May 15, 2023
Apple PC Screen

Apple’s Stock In Focus: More Profitable Than Banks

Investors looking for the “next big thing” will point toward companies like Stripe, Sofi or Square as the leading fintech stocks. Meanwhile, the next big thing to disrupt the financial sector may be s

May 04, 2023
Netflix Remote Control

This Stock Price For Netflix Is A “Buy” For 2023

In April of 2022, Netflix surprised the markets by reporting its first subscriber loss in nearly 10 years. The stock tumbled 35% the following day, as investors panicked. Famed hedge fund manager, Bil

May 03, 2023
Where the I/O Fund Holds Cash When Banks Keeps Failing

Where the I/O Fund Holds Cash When Banks Keeps Failing

Amidst the growing skepticism in our banking sector, we thought it would be helpful to introduce an alternative way to both protect and diversify one’s assets. The information below discusses a method

April 20, 2023
Tesla Building

Tesla Stock: What You Need To Know About Q1 Earnings

Two months ago, we wrote that after realizing gains of 31%, it was time to take a time out on Tesla at the $208.31 price when our firm stated: “Right now, our technical analysis is at odds with our fu

April 16, 2023
Bitcoin Vs Banks: Here's Where the Price Goes Next

Bitcoin Vs Banks: Here's Where the Price Goes Next

The recent decoupling of Bitcoin from equities, we believe, is the start of a new uptrend that appears to be inversely correlated to the financial sector. The financial media would have us believe tha

April 05, 2023
Official Press Release: I/O Fund's Cumulative Returns Double the Nasdaq Following a Tough 2022

Official Press Release: I/O Fund’s Cumulative Returns Double the Nasdaq Following a Tough 2022

Actively managed portfolio and research site announces its largest cumulative lead over institutional all-tech portfolios. The I/O Fund defies a challenging market, outperforming peers and providing i

March 30, 2023
newsletter

Sign up for Analysis on
the Best Tech Stocks

https://bethtechnology.cdn.prismic.io/bethtechnology/e0a8f1ff-95b9-432c-a819-369b491ce051_Logo_Final_Transparent_IOFUND.svg
The I/O Fund specializes in tech growth stocks and offers in-depth research for Premium Members. Investors get access to a transparent portfolio of 30 positions, a private forum, webinars, and real-time trade notifications. Sign up for Premium.

We are on social networks


Copyright © 2010 - 2023
Get Free Weekly Analysis on the Best Tech Stocks