Cloud computing is a vast industry expected to achieve a 16.40% compounded growth rate until 2029. Businesses operating in this sector have experienced rising revenue and profit margin expansion.
Some big tech corporations have embraced this technology and have become early adopters. The early mover advantage has helped a few large companies end up with a significant percentage of the cloud computing market share. The top three companies in the industry have overwhelming leads on the rest of the competition. The three stocks below have 66% of the total market share.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) is the leader in cloud computing. It has a 31% market share in the industry and continues to achieve a double-digit growth rate. Amazon Web Services grew its sales by 13% year-over-year in Q4 2023 to reach $24.2 billion. Amazon grew its net sales by 14% year-over-year to reach a record $170.0 billion. The online marketplace is still a key revenue driver.
The tech conglomerate also benefits from other business segments like advertising and video streaming. Analysts feel optimistic about the stock and have rated it as a “Strong Buy.” It has a projected 13% upside. Analysts have been rushing to raise their price targets, and the highest currently stands at $230. This price target implies a 24% upside.
Amazon stock has been outperforming the stock market. Shares are up by 24% year-to-date and have gained 81% over the past year. Rising profit margins can bring the stock price higher.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) has the second-largest market share in the cloud computing industry. The company gained ground on Amazon and has 24% of the industry under its reigns. Microsoft has compelling growth opportunities that stretch beyond cloud computing. It owns LinkedIn, Xbox, various software products, Copilot and other businesses.
Microsoft Cloud is the main growth driver for the stock. The company’s cloud segment grew by 24% year-over-year in Q2 FY24, making up more than half of the company’s total revenue. Analysts are optimistic about the company and rated it as a “Strong Buy.” The stock has a projected 12% upside from the current price point.
Overall revenue jumped by 18% year-over-year, while net income surged by 33% year-over-year. Those financials indicate Microsoft can gain more ground and reward long-term investors. Seeing a company with a vast moat reporting revenue growth while expanding profit margins is a good sign. Shares are up by 14% year-to-date.
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) started as an advertising company. While Google and YouTube advertisements are still the company’s main source of revenue, cloud computing is a growing segment. Alphabet’s cloud revenue represents more than 10% of the company’s total revenue. Google Cloud contributed to the company’s 13% year-over-year revenue growth in Q4 2023. Net income soared by 52% year-over-year.
Alphabet is rated a “Strong Buy” with a projected 5% upside. The highest price target of $185 per share indicates the stock can rally by an additional 17% from current levels. Alphabet shares are up 14% year-to-date and have gained 150% over the past five years.
Recent AI miscues have caused investors to underestimate the company’s potential in the industry. Tepid excitement around AI initiatives has resulted in a reasonable 29 P/E ratio relative to other big tech stocks. Alphabet is far more than just AI and is gaining market share in the advertising and cloud computing industries.
On this date of publication, Marc Guberti held long positions in AMZN, MSFT, and GOOG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.