U.S. Markets close in 4 hrs 31 mins

Here's How M&As Are Giving Cloud Services a Boost

Zacks Equity Research
The cloud computing industry is growing at a rapid pace and is becoming integral to the growth strategy of the tech giants.

Global tech giants are aggressively investing billions in expanding their cloud services. The latest to jump the bandwagon is SAP.SE SAP, which will be buying software company Qualtrics for $8 billion just before its planned IPO.

Last month, International Business Machines Corporation IBM acquired open source software company Red Hat, Inc. RHT. Understandably, tech giants have been acquiring smaller cloud and software companies throughout 2018 in a bid to stay abreast of the likes of Amazon.com, Inc.’s (AMZN) Amazon Web Services and Alphabet Inc.’s GOOGL cloud services.

SAP Takes the Big Leap

SAP will be acquiring Qualtrics for $8 billion in an all-cash deal. This will be one of SAP’s largest acquisitions in recent years. The German-based tech giant had earlier acquired software company Concur for $8.3 billion in 2014. Prior to that, SAP had acquired SuccessFactors in 2011 for $3.4 billion to build its cloud business.

Cloud computing is increasingly becoming an integral part of the growth strategy for tech giants. SAP and Qualtrics combined could look into the customer relationship management CRM software, which so far has been dominated by salesforce.com, inc. CRM, with Microsoft Corporation (MSFT) fast invading the space. The new deal could also pose challenges to SVMK Inc. (SVMK), one of Qualtrics’ competitors, which went public in September. Microsoft has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

M&A Help Tech Giants Boost Cloud Service

With the likes of Amazon Web Services and Google’s cloud services fast expanding their grip over the cloud computing industry, other tech majors like Microsoft, Salesforce and IBM are acquiring smaller cloud and software companies to expand their cloud business and stay in the race.

Per a recent report by research firm Forrester’s, the global cloud computing market is expected to surpass $200 billion in 2019. This year so far has seen quite a few big-ticket mergers, as tech giants continue to place big bets on cloud services. 

Last month, IBM said that it would be acquiring Red Rat for $34 billion. This will be IBM’s largest deal ever and reportedly the third-biggest tech merger in the history of the United States. In July, Broadcom Inc. AVGO acquired CA, Inc. CA for $18.9 billion.

Prior to that, Microsoft, in June, announced that it would be acquiring code-sharing service, Github, for $7.5 billion. In October, Cloudera, Inc. CLDR and Hortonworks, Inc. (HDP) announced their merger in a $5.2 billion deal.

Also, recently Alibaba Group Holding Limited’s BABA CEO Daniel Zhang said that the company’s cloud computing arm will be its main business in the future. The e-commerce giant’s cloud computing business has been expanding at a rapid pace accounting for 7% of the total revenues in the quarter ended Sep 30. 

Summing Up

The cloud computing industry is growing at a rapid pace and is becoming integral to the growth strategy of the tech giants. This has encouraged a number of tech giants in 2018 to acquire smaller cloud and software companies in order to beef up their cloud computing business and stay ahead in the race. 

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
International Business Machines Corporation (IBM) : Free Stock Analysis Report
 
Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
 
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
 
SAP SE (SAP) : Free Stock Analysis Report
 
Red Hat, Inc. (RHT) : Free Stock Analysis Report
 
salesforce.com, inc. (CRM) : Free Stock Analysis Report
 
Broadcom Inc. (AVGO) : Free Stock Analysis Report
 
Cloudera, Inc. (CLDR) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research