U.S. Markets open in 8 hrs 39 mins

Where Will the Cloud Race Take AWS and Azure?

Tirthankar Chakraborty

It seems like almost every business house wants to get into the cloud business. And the top two cloud vendors, Amazon.com, Inc. AMZN and Microsoft Corporation MSFT, are contesting fiercely to gain market share. Let us, thus, look at the companies to examine which is a better cloud play.

Amazon Web Services Leads Market

Amazon is currently maintaining the lead in the cloud computing space. Almost all of Amazon’s cloud revenues come from AWS, a secure cloud service platform that provides database storage and various other functionalities that help businesses grow. The AWS platform provides accessible, dependable and secure IoT applications. In fact, the AWS IoT platform helps devices connect securely to the cloud infrastructure and route messages.

Amazon’s AWS first-quarter revenues soared 41% on an annual basis to $7.7 billion, or 13% of its top line. And its operating income was up 58% to $2.2 billion, which is almost half of Amazon’s inclusive operating profit margin.

AWS’ strategy is surely paying off. It aims for complete transparency and provides end users a worthwhile experience. AWS also aims at being a low-cost solution and has recently slashed prices more than 67 times since it has been launched. Amazon, in the meantime, is bold enough to acknowledge that some of its customers are startups and lack significant funds.

But, the problem Amazon currently faces is stiff competition. And many of its competitors don’t reveal their precious data in Amazon’s hands. And that leads us to the not-so-cheap Azure platform.

Can Azure Beat AWS?

Microsoft’s Azure has been steadily gaining market traction for quite some time now. While AWS generated revenues worth $25.6 billion last year, up 47% year over year, Azure climbed way higher at 73%. In the first three months of this year, Azure maintained lead over AWS on a year-over-year basis (+75% vs +41%).

Azure actually enjoys certain advantages over AWS. Let’s admit, Microsoft has a leading position in the PC market and an incredibly strong distribution system, which are more than enough to lure big enterprise customers for Azure.

Some critics may however say that AWS is also a reliable brand, so why can’t it gain an equal number of attract customers? Well it may, but when it comes to brick-and-mortar retailers, it cannot. After all, companies such as Walmart Inc. WMT, Walgreens Boots Alliance, Inc. WBA and The Kroger Co. KR compete with Amazon in the retail space and often pick Azure over AWS.

Microsoft Escalates Cloud War With Amazon

Microsoft, in the meanwhile, has taken a step further and intensified its cloud battle with Amazon. It is allowing users of its GitHub code hosting service provide login credentials in order to access Azure. Microsoft is also making GitHub’s enterprise tier well-matched with the Microsoft Azure Active Directory service. This will help administrators easily manage employees’ GitHub usage.

This change will certainly lead to greater acceptance of Microsoft’s Azure for hosting applications and storing data. And that’s critical for Microsoft if it wants to catch up with Amazon’s AWS. Amazon had 32% of the cloud market share at the end of last year, while Microsoft had 13.7% followed by Google Cloud’s 7.6%.

Bottom Line

Over the past three years, Microsoft has surged more than 150% compared with the broader S&P 500’s rise of around 40%.

Such solid gains may have been achieved by the company’s Windows operating system, but, most importantly its growing clouding computing business primarily contributed to the company’s historic rise. And now the Zacks Rank #2 (Buy) company believes that new features for Azure, including services for IoT devices, will boost revenues per customer. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

But, it’s just not Azure; other cloud software services of Microsoft make it more diversified than Amazon. While Office 365 currently has garnered nearly 180 million users across the globe, Dynamics 365 continues to grow at a rapid pace amid stiff competition from the likes of salesforce.com, inc. CRM.

Here’s how Office 365 and Dynamics 365 performed in recent quarters:

Segment Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019
Office 365 Commercial 40% 35% 35% 33% 31%
Dynamics 365 62% 56% 49% 50% 44%

(Source: Microsoft Quarterly Reports)

But Azure won’t be able to catch up to AWS’ revenue growth any time soon, even at the current staggering growth rate. This is purely because Amazon is the undisputed leader in cloud computing, with a 70%-plus market share.

And now with Apple Inc AAPL becoming a major customer for its cloud platform, Amazon can easily maintain the trend of being a leader in the cloud computing space. This is because CNBC recently reported that Apple is spending more than $30 million a month on Amazon’s cloud despite building its own data storage device.

RBC Capital Markets analyst Mark Mahaney said that AWS is positioned to maintain an encouraging growth rate of more than 40% for the tenth successive year. Purely based on AWS’ strength, shares of Amazon have gained at a commendable rate. The Zacks Rank #3 (Hold) company has easily outpaced the broader S&P 500 over the past three-year period as well (+182.6% vs 40.2%).

However, given the robust growth rate exhibited by both the platforms recently, it can be safely concluded that neither Amazon nor Microsoft will lose pricing power anytime soon.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +98%, +119% and +164% in as little as 1 month. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>

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
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
salesforce.com, inc. (CRM) : Free Stock Analysis Report
Walmart Inc. (WMT) : Free Stock Analysis Report
Walgreens Boots Alliance, Inc. (WBA) : Free Stock Analysis Report
The Kroger Co. (KR) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research