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The pandemic set an unstoppable cloud force in motion and Amazon, Microsoft, and Google aren't slowing down (AMZN, MSFT, GOOGL)

Published by Business Insider on Sat, 01 May 2021

<p><img src="https://static4.businessinsider.com/image/608c9d81f22c6b00185db1b9-989/Bezos-Nadella-Pichai.jpg" border="0" alt="Bezos Nadella Pichai" data-mce-source="Lucas Jackson/Reuters, Charles Krupa/AP Photo, Denis Balibouse/Reuters" data-mce-caption="The CEOs of the three cloud giants, Satya Nadella of Microsoft, Jeff Bezos of Amazon, and Sundar Pichai of Google, all reported blockbuster earnings this week driven by cloud momentum."></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><p>Microsoft, Google, and Amazon all <a href="https://markets.businessinsider.com/currencies/news/stock-market-news-today-1q2021-gdp-tech-earnings-sp500-record-2021-4-1030366878">reported blockbuster earnings</a> this week and its largely thanks to strong cloud growth.&nbsp;</p><p>The pandemic put tech modernization front and center, forcing companies to prioritize moving to the cloudand analysts think that the momentum of that digital transformation is unstoppable. The events of the last year only enhanced the appeal of the cloud, making it more clear to companies than ever that investing now can pay dividends later, whether or not there's a pandemic putting pressure on their businesses.</p><p>Importantly, too, this dynamic only serves to entrench the power of <a href="https://www.businessinsider.com/amazon-earnings-q1-2021-revenue-eps-profit-analysis-2021-4">Amazon Web Services</a>, <a href="https://markets.businessinsider.com/news/stocks/microsoft-q1-earnings-analysis-piper-sandler-wedbush-jpmorgan-goldman-2021-4-1030359285">Microsoft Azure</a>, and <a href="https://www.businessinsider.com/alphabet-google-earnings-q1-2021-revenue-eps-profit-analysis-2021-4">Google Cloud</a>as well as other cloud heavyweights like Zoom or Salesforce, both of which themselves <a href="https://www.businessinsider.com/zoom-aws-preferred-cloud-provider-oracle-microsoft-2020-11">run at least partially on Amazon's cloud</a>as the very few who can offer the right amount of computing power at the right price to meet the needs of the moment.</p><p>"The growth from the likes of the Big ThreeMicrosoft, AWS, and Googlewas jaw dropping," Wedbush Securities managing director Dan Ives told Insider. "I think this earnings season put a major exclamation mark on the type of growth that cloud computing is seeing."</p><p>And he believes there's no going back: "It's a misnomer that with work from home tailing off, and on the other side a pandemic, cloud computing is going to fall off a cliff. I think it's the exact opposite."</p><p>The question becomes less about whether or not the cloud continues to grow and more about how providers like Amazon, Microsoft, and Google keep up the pace. Ives and other analysts will be watching trends like hybrid cloud, which combines cloud platforms with private data centers and servers, and <a href="https://www.businessinsider.com/microsoft-cloud-healthcare-indsutry-specific-hires-2020-5">industry-specific offerings,</a> where companies sell specific tools for the healthcare or telecom. 2021 will be "the year of the vertical cloud," analyst Maribel Lopez told Insider, because "all the base foundation stuff is done."</p><h2><strong>Amazon is the leading cloud, but Google and Microsoft showed strong growth</strong></h2><p>Amazon is still the <a href="https://www.businessinsider.com/how-amazon-web-services-expanded-cloud-empire-beyond-infrastructure-2021-3">frontrunner in terms of cloud market share,</a> but each of the Big Three posted strong numbers when they reported earnings earlier this week:</p><p>Google Cloud <a href="https://www.businessinsider.com/alphabet-google-earnings-q1-2021-revenue-eps-profit-analysis-2021-4">reported $4 billion</a> in revenue for the first quarter on Wednesday, up 46% from the same period prior. Microsoft said that Azure grew 50% year-over-over, although it does not break out revenue numbers (it's included in its intelligent cloud segment, which includes a wide range of products and generated $15.1 billion in revenue, up 23% from this time the year before). <a href="https://www.businessinsider.com/amazon-earnings-q1-2021-revenue-eps-profit-analysis-2021-4">Amazon reported that its cloud unit AWS</a> generated $13.5 billion this past quarter, up 32% from a year prior.</p><p>Notably, <a href="https://www.businessinsider.com/microsoft-azure-google-take-on-amazon-aws-cloud-wars-2021-4">both Google and Microsoft's clouds grew at similar rates</a>, but Microsoft operates on a larger scale, showing that "Microsoft's growth at scale is second to none," Wolfe Research analyst Alex Zukin wrote in a note.</p><p>Google shares climbed as much as 5%, Amazon's stock saw an uptick of nearly 2%, and Microsoft's stock actually slipped 3.5% after the report, despite beating Wall Street's expectations.</p><p>"I think the stocks didn't react as you'd expect," Ives said, because the cloud giants have "almost become a victim of their own success because the growth numbers are so strong."</p><p>That "law of large numbers" is particularly true for Amazon, which said that the "absolute dollar growth" demonstrates the <a href="https://www.businessinsider.com/amazon-web-services-2021-top-challenges-opportunities-year-ahead-2021-4">continued strength of its cloud business</a>.</p><p>That growth has also led to consolidation within the cloud industry, which seems to be putting more power in the hands of the biggest players with deals like <a href="https://www.businessinsider.com/microsoft-will-buy-ai-speech-firm-nuance-for-19-billion-2021-4" target="_blank" rel="noopener noreferrer" data-stringify-link="https://www.businessinsider.com/microsoft-will-buy-ai-speech-firm-nuance-for-19-billion-2021-4" data-sk="tooltip_parent">Microsoft's $19.7 billion purchase</a> of AI and voice communications company Nuance and&nbsp;<a href="https://www.businessinsider.com/salesforce-slack-acquisition-merger-deal-2020-11" target="_blank" rel="noopener noreferrer" data-stringify-link="https://www.businessinsider.com/salesforce-slack-acquisition-merger-deal-2020-11" data-sk="tooltip_parent">Salesforce's $27.7 billion purchase</a> of messaging app Slack. After AWS rival <a href="https://www.businessinsider.com/digitalocean-ipo-amazon-web-services-rival-stock-2021-3" target="_blank" rel="noopener noreferrer" data-stringify-link="https://www.businessinsider.com/digitalocean-ipo-amazon-web-services-rival-stock-2021-3" data-sk="tooltip_parent">DigitalOcean's March IPO failed to meet expectations</a>, it raised questions over whether Wall Street has faith in an upstart's ability to compete head-on with the cloud giant.</p><p>So while such signs could indicate the Big Three's lead is untouchable, Ives says cloud is actually so strong there's room for others to capture segments of the marketparticularly in hybrid cloud.</p><p>"None of the vendors are going to overtake Microsoft and Amazon, but I think it really speaks to the hybrid cloud and what we're seeing that there's going to be many winners in the cloud," Ives said, calling out Google Cloud and <a href="https://www.businessinsider.com/ibm-rob-thomas-turbonomics-acquisition-ai-hybrid-cloud-aiops-2021-4" target="_blank" rel="noopener noreferrer" data-stringify-link="https://www.businessinsider.com/ibm-rob-thomas-turbonomics-acquisition-ai-hybrid-cloud-aiops-2021-4" data-sk="tooltip_parent">legacy giant IBM, which is pushing hard in hybrid</a>.</p><h2><strong>The 'golden age' of digital transformation isn't going away anytime soon</strong></h2><p>Even with greater availability of vaccines and a return to the office in 2021, analysts are confident that cloud adoption will keep pace.</p><p>Ives wrote in a note to clients that the pandemic has moved up companies' IT timelines by a year to 18 months, and estimated that as many as 90% of cloud deployments have already been approved by CIOs, with large budgets set for cloud deployments this year.</p><p>"For Redmond, this cloud shift and work from home dynamic looks here to stay and the company stands to be a major beneficiary of this trend on its flagship Azure/Office 365 franchise over the coming years," Ives wrote of Microsoft. Microsoft's large base of customers for other Microsoft productslike its <a href="https://www.businessinsider.com/miss-excel-microsoft-tiktok-instagram-influencer-six-figures-2021-4">suite of productivity tools, including Excel</a>is a lucrative market to tap for Azure in the years ahead.</p><p>"With the company at the epicenter of cloud, collaboration and digital transformation enablement, the current environment is providing a tailwind to Microsoft's businesses and the company is proving that it's able to capitalize on these trends," Zukin wrote in a note to clients.&nbsp;</p><p>Meanwhile, Google Cloud has been <a href="https://markets.businessinsider.com/news/stocks/univision-partners-with-google-on-digital-media--advertising-infrastructure-10064143">signing big contracts with companies like Univision</a>, <a href="https://www.businessinsider.com/alphabet-earnings-google-cloud-deprecation-policy-deals-customer-trust-2021-4">Global Payments, and Grupo Globo</a>which all indicate long-term growth.</p><p>"While Google is still a challenger, there's plenty of runway ahead," Nick McQuire, chief of enterprise research at CCS Insight, told Insider. "I think clearly the strategy at the moment is to grow fast. It's still really, really early in the game."</p><p>Analysts aren't too worried about Google Cloud's $974 million first quarter operating losses because it has plenty of cash to cover them, and to <a href="https://www.businessinsider.com/google-cloud-ceo-thomas-kurian-goldman-sachs-2021-2">invest in growing</a> the cloud business until it reaches a point of scale.&nbsp;</p><p>"It's definitely a scale game," Andrew Bartels, vice president and principal analyst at Forrester, told Insider. "Companies like Azure and AWS were already built to scale. Google is still building out its scale. It may not be profitable for a while."</p><p>And cloud leader Amazon is confident that pandemic recovery will benefit its cloud business, as CFO Brian Olsavsky said during the company's earnings call: "During COVID, we've seen many enterprises decide that they no longer want to manage their own technology infrastructure," he said. "We expect this trend to continue as we move into the post-pandemic recovery."</p><p>Analysts believe this growth is sustainable as well.</p><p>"I don't think cloud growth starts to more significantly moderate till 2024 or 2025I think we're going to have two to three years of hyper growth around the cloud because of the workloads," Ives said. "I think it just speaks to the golden age in terms of digital transformation."</p><h2><strong>Healthcare will be a major battlefield for cloud in the coming years</strong></h2><p>The next big battleground for the clouds is in <a href="https://www.businessinsider.com/amazon-web-services-industry-focus-sales-teams-dave-mccann-2020-12">vertical or industry-specific clouds</a>, or cloud products that are fine-tuned for specific industries like financial services, manufacturing, and healthcare, some analysts say.</p><p>In particular, the healthcare industry will be hot for major cloud providers, especially on the heels of Microsoft's <a href="https://www.businessinsider.com/microsoft-nuance-acquisition-discord-strategy-satya-nadella-2021-4">$19.7 billion purchase</a> of AI communications company Nuance. Nuance can help Azure win over even more healthcare customers if Microsoft can package Nuance's services into its cloud, while including services like AI capabilities and Microsoft Teams' messaging features into Nuance.</p><p>"When I look at the industry cloud opportunities, we think of healthcare as a very critical opportunity for us and a huge and expansive addressable market," Microsoft CEO Satya Nadella said on the company's earnings call.</p><p>Meanwhile, AWS has several dedicated cloud products for healthcare, too, including Amazon HealthLake, and is seeing "great usage and expansion across a number of industries," Olsavsky said on the earnings call.</p><p><a href="https://www.businessinsider.com/google-cloud-hires-two-new-executives-reorganization-2020-5" target="_blank" rel="noopener noreferrer" data-stringify-link="https://www.businessinsider.com/google-cloud-hires-two-new-executives-reorganization-2020-5" data-sk="tooltip_parent">Google also announced industry-specific cloud initiatives</a> last year, including a healthcare cloud and <a href="https://www.businessinsider.com/google-cloud-unveils-new-healthcare-ai-tools-for-admin-tasks-2020-11" target="_blank" rel="noopener noreferrer" data-stringify-link="https://www.businessinsider.com/google-cloud-unveils-new-healthcare-ai-tools-for-admin-tasks-2020-11" data-sk="tooltip_parent">AI products</a> for the industry. <a href="https://www.businessinsider.com/google-cloud-thomas-kurian-master-plan-2019-2">Since the beginning</a> of Kurian's leadership, Google Cloud <a href="https://www.businessinsider.com/google-cloud-ceo-thomas-kurian-oracle-strategies-2019-4">has gone deeper</a> into selling <a href="https://www.businessinsider.com/google-cloud-ceo-thomas-kurian-aws-microsoft-2020-2">to specific industries</a> as part of its master plan to take on AWS and Microsoft. In the past year, it's made a major play in the finance, telecommunications, and <a href="https://www.businessinsider.com/google-cloud-exec-retailers-peak-traffic-2020-12">retail industries</a>, <a href="https://www.businessinsider.com/google-cloud-partners-flexible-customers-microsoft-aws-2020-8">winning over customers</a> like <a href="https://www.businessinsider.com/thomas-kurian-google-cloud-customers-verizon-deutsche-bank-2020-7">Goldman Sachs</a>, Deutsche Bank, Verizon, and <a href="https://www.businessinsider.com/bed-bath-and-beyond-google-cloud-2020-9">Bed Bath &amp; Beyond</a>.</p><p>Each of these cloud's massive growth rates reflect how big the market is and how much room there still is to grow, analysts say, whether that's in verticals or IT environments overall.</p><p>"I think it just shows that this $2 trillion digital transformation is still in the early innings of playing out," Ives said. "The foundational platform piece is still playing out in the cloud."</p><p><a href="https://www.businessinsider.com/amazon-aws-microsoft-google-cloud-earnings-digital-transformation-growth-2021-4#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="https://www.businessinsider.com/how-parasite-delivered-one-of-the-best-twists-in-cinema-2020-2">What makes 'Parasite' so shocking is the twist that happens in a 10-minute sequence</a></p>
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