Microsoft Corporation MSFT ended a record-breaking fiscal year on Jul 22 with fiscal fourth-quarter earnings of $11.2 billion or $1.46 a share on revenues of $38 billion. Analysts expected profit of $1.38 a share on sales of $36.59 billion (read more: Will Cloud Dominate Microsoft's Q4 Earnings Story Today?).
For the fiscal year, Microsoft registered earnings of $44.28 billion on sales of $143 billion, up 13% and 14% respectively, from the previous year’s record performance. Particularly, in 2020, Microsoft prospered despite the coronavirus pandemic as its Intelligent Cloud segment, including Azure, has seen a surge in demand as companies adapt to the new normal with employees working from home.
For instance, in the fiscal fourth quarter, Microsoft’s Intelligent Cloud division raked in $13.4-billion sales compared to analysts’ estimate of $13.11 billion. Sales also grew 17% year over year. Microsoft Chief Financial Officer Amy Hood, in fact, said that “our commercial cloud surpassed $50 billion in annual revenue for the first time this year. And this quarter our commercial bookings were better than expected, growing 12% year-over-year.”
What’s more, Microsoft’s Productivity & Business Solutions division that mostly comprises cloud-software assets, including Teams, registered revenues of $11.8 billion, up 6% from year-ago levels. Use of Teams, by the way, soared to 75 million in June from 44 million in March.
Shares of Microsoft are now up more than 34% this year, pushing the tech giant’s market capitalization beyond $1.6 trillion. Meanwhile, the broader S&P 500 gained a meager 1.4% year to date. No doubt, Microsoft’s record-breaking fiscal year on booming demand for cloud services has been a shot in the arm for other cloud players. But it’s just not the pandemic that’s responsible for boosting the adoption of cloud computing. Before the pandemic accelerated the trend, research firm Gartner had estimated that the cloud computing market will grow 17% this year to reach $266 billion.
Let’s, thus, take a closer look at some of the notable cloud computing stocks like Microsoft that not only benefitted from this growing tech theme but are also poised to keep gaining in the near term –
Amazon.com, Inc.’s AMZN focus on cloud might have just saved it from a coronavirus crash in the quarter ending June 2020. Amazon is certainly in the spotlight as it is currently one of the biggest players in the cloud infrastructure market.
The Seattle-based company has a solid presence throughout the Internet via Amazon Web Services (“AWS”). And some of big names, including General Motors, Baidu, Spotify, McDonald’s, Twitter and Johnson & Johnson, use AWS.
AWS has more than a 30% market share in cloud infrastructure and easily dwarfs rivals like Azure (17% share) and Google Cloud (6% share). What’s more, with more people working from home, the usage of AWS cloud services will increase.
The company’s expected earnings growth rate for the current quarter is 19.9%. Amazon has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Alibaba Group Holding Limited’s BABA cloud business unit, with the help of AI-led technologies, is providing data on coronavirus and its diagnosis. Applications developed by the company’s cloud experts and researchers from its subsidiary DAMO Academy are expected to provide the necessary support to medical professionals across the globe in combating the spread of the virus.
By the way, increased video consumption and wide adoption of remote working amid the pandemic are boosting Alibaba’s cloud business unit. On cloud, CEO Daniel Zhang said that “we believe the pandemic will further accelerate digital transformation of enterprises. All industries, including public sectors, will choose to move their technology infrastructure to the cloud.”
The company’s expected earnings growth rate for the current year is 14.7%. Alibaba has a Zacks Rank #3.
NVIDIA Corporation NVDA is primarily known for supplying graphics processing units (GPUs) to cloud providers. Lately, NVIDIA launched the A100 GPU which will be deployed by the likes of Alibaba Cloud, AWS and Microsoft Azure. It will be helpful in handling huge workloads as well as AI applications.
Thus, NVIDIA no doubt is in a great position to benefit from the growth in cloud computing. Co-founder of the graphics-processor company, Jensen Huang, added that “I think that accelerated cloud computing is a movement that is going to be a multiyear, if not a decade-long, transition.”
The company’s expected earnings growth rate for the current year is 36.4%. NVIDIA has a Zacks Rank #3.
Zuora, Inc. ZUO provides cloud-based software on a subscription basis that enables companies in various industries to launch, manage and transform into a subscription business.
Cloud-based software or software-as-a-service (SaaS) companies enjoy high margins since costs linked with delivering a cloud-hosted software service is relatively less. Widely speaking, SaaS stocks are winners in the near term with fat margins and steady revenue streams.
Research firm Gartner, in fact, expects SaaS to be one of the fastest growing market segments in the near term, with revenues expected to grow exponentially through 2022. Take a look at the table —
Nonetheless, the company’s expected earnings growth rate for the current quarter is 22.2%. Zuora has a Zacks Rank #2 (Buy).
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