Blogs -Best Bet for Tech Stocks in 2019? Secular IaaS.

Best Bet for Tech Stocks in 2019? Secular IaaS.


February 08, 2019

author

Beth Kindig

Lead Tech Analyst

If ever there was a growth story in the next 2-3 years, especially during potential economic uncertainty, then infrastructure-as-a-service (IaaS) is it. This past week, Amazon’s IaaS offering, AWS, reported sales growth of 45% from $5.11 billion to $7.43 billion, with operating income increasing 61% to $2.18 billion up from $1.35 billion. Microsoft’s IaaS offering, Azure, was up 76 percent (same as last quarter) reaching $4 billion in revenue. Microsoft’s overall commercial cloud computing revenue which includes software grew 48 percent to $9 billion. If both companies continue on this trajectory in 2019, then Microsoft will narrow its gap from 3:1 to 2:1 with Amazon.

2018 CLOUD IAAS REVENUES
$26 billion AWS
$10 billion MS

UPDATED PROJECTED 2019 if growth continues at current rate
$16 billion MS
$30 billion AWS

https://images.prismic.io/bethtechnology/78e0d1fd-0452-407d-8f99-daa66d71be54_Revenue-trends-cloud-computing-e1549592203847.png?auto=compress,format

Amazon, Microsoft and Google Revenue Trend Chart

Note: I’ve written quite a bit of analysis over the last few months about the duopoly between Microsoft and Amazon. To quickly summarize, my first analysis discussed the strategic acquisition of Github. My second analysis discussed the great efforts Microsoft has put into become a serious bidder for the Pentagon contract.

Truly, there is plenty of green field for both players. The investment window for the IaaS market is far from over as it took twelve years for the IaaS market to reach $40 billion and it will take only three years to double to $80 million – and this figure is on the low end of estimates.

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

Here are a few of the projections for this space from various analysts:

  • Amazon’s Cloud Business could reach $71 billion by 2022 with a valuation of $350 Billion (source Jefferies – which tends to be more bullish on AWS than MS).
  • Microsoft’s Cloud Business Could Be Bigger Than Windows by 2021 with $26.4 billion in revenue in 2021 fiscal year vs. $20.3 billion from Windows (source: Keybanc – most estimates on MS are low, which is why there’s still a growth story here)
  • Global cloud IT market will triple between 2015 and 2020 with IaaS being the segment with the largest growth of 27% compared to SaaS growth of 18% (source: Bain and also SoftwareStrategistBlog.com)
https://images.prismic.io/bethtechnology/d489cd11-e8ac-4469-9bcf-7a33e2821a9e_cloud-hardware-software-services.jpg?auto=compress,format

Global IT Revenue Chart Growth source: Bain Analysis

IaaS Cloud is Secular

On a micro-level, the tech industry is in a state of transition. Mobile is hitting saturation, social media faces privacy regulations, chip makers are getting hurt in the trade war, and meanwhile, 5G, artificial intelligence, and autonomous vehicles are too nascent to see returns in the near term. This is one reason I continue to hammer on IaaS as a safe, secular bet. Companies are going through a major transition right now by transferring work loads into the cloud.

As these transitions take place, IaaS will be as essential to companies as food, gas and cigarettes are to consumers. The company that has transferred to the cloud cannot exist without budgeting for this operating expense. Meanwhile, the companies who have not transferred to the cloud risk losing on competitive advantages such as artificial intelligence, machine learning, and scaling quickly through server virtualization.

As it currently stands, IaaS is Amazon’s largest revenue segment and Microsoft’s fastest growing revenue segment – although there is plenty of addressable market left for both players. Amazon’s capex spending (which includes all capex; not AWS specific) was at $14 billion in 2018 while Microsoft reported capex of $12 billion. One major drawback is that these are not pure play IaaS stocks which introduces risk from other revenue segments. You can read my follow up analysis on 6 pure play cloud stocks here.

Gains of up to 2,390% from our Free Newsletter.


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

+2,390% on Nvidia

+450% on Bitcoin

*as of Jun 25, 2024

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 3,900% on Nvidia, 850% on Chainlink, and 695% on Bitcoin. 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

Jensen Huang at Convention

Nvidia Stock Is Selling Off: It’s Not Because Of Blackwell

Direct liquid cooling doesn’t lie as it’s intricately linked to the Blackwell launch, implying that Blackwell would indeed ship by Q4 – and Nvidia just confirmed that (multiple times) in Q2’s release.

September 02, 2024
Jensen Huang's Presentation

Nvidia Stock: Blackwell Suppliers Shrug Off Delay Ahead Of Q2 Earnings

Bulletproof Nvidia showed an unusual bout of weakness this past month following a report from The Information that Nvidia’s new AI chips are delayed. The report asserts that Nvidia’s upcoming artifici

August 26, 2024
Microchips

Arm Stock: Buy Its Customers, Not The Stock

Arm Holdings is the third-best performer of 2024 in AI-related semiconductor stocks with a 56% YTD return, behind only Nvidia and Taiwan Semiconductor.

August 20, 2024
Big Tech Battles on AI

Big Tech Battles On AI, Here’s The Winner

The major theme over the past month in Big Tech and AI semiconductors has been the durability of demand: essentially, what is Big Tech’s return on more than $150 billion in capex over the last twelve

August 12, 2024
Bitcoin Update - Next Stop $100,000

Bitcoin Update: Next Stop $100,000

Bitcoin is the best performing asset in market history. There is no stock or asset that has come close to delivering the returns of this digital currency --- it has greatly outperformed all FAANGs, an

August 01, 2024
Mag 7 Stocks Should See One More High

Mag 7 Stocks Should See One More High

Optimism around the Fed could spark a continuation of the relief rally in the Russell 2000 and further rotation out of the Mag 7. Below, we look at the pros and cons of a Mag 7 rotation and how we pla

July 25, 2024
https://images.prismic.io/bethtechnology/Zp8WKh5LeNNTxaPe_Palantir%E2%80%99sStockIsPricedForPerfection.jpg?auto=format,compress

Palantir’s Stock Is Priced For Perfection

Heading into 2024, Palantir was exhibiting “multiple signs of acceleration” stemming from strong growth in its US commercial segment, driven by AIP, Palantir’s Artificial Intelligence Platform that le

July 22, 2024
https://images.prismic.io/bethtechnology/ZpZ1bx5LeNNTxMuv_Tesla%E2%80%99sQ2DeliveriesStrong%2CButWhat%E2%80%99sToCome_.jpg?auto=format,compress

Tesla’s Q2 Deliveries Strong, But What’s To Come?

After months of being the lowest performing Mag 7 stocks, Tesla saw rapid gains — up 42% in a one month rally, with 37% of those gains in eight sessions — after it reported Q2 deliveries ahead of expe

July 16, 2024
Knox at SA conference

How to Participate in Tech: The Million Dollar Question (Video Highlights)

With audited returns of 131% since inception, compared to the NASDAQ-100’s 82%, portfolio manager, Knox Ridley, lays out how we have successfully maintained an overexposure to the right tech stocks, w

July 03, 2024
This AI Stock Could Outpace Nvidia’s Returns by 2030

This AI Stock Could Outpace Nvidia’s Returns by 2030

Lead Tech Analyst and CEO Beth Kindig recently joined Real Vision’s Nico Brugge to discuss her AI outlook on leading AI stock Nvidia, while sharing which AI stock she believes may outpace Nvidia’s ret

July 03, 2024
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, a forum, webinars, and real-time trade notifications. Sign up for Premium.

We are on social networks


Copyright © 2010 - 2024