Amazon Analysts\' Heads Are in the Cloud

 Wayne Duggan

Amazon Inc (Nasdaq: AMZN) stock has taken a hit the past two weeks, dropping 7.2 percent after President Donald Trump repeatedly criticized the company for its tax practices and U.S. Postal Service shipping rates.

However, all signs indicate that Amazon's core businesses are firing on all cylinders, and its cloud services segment, Amazon Web Services, may be the crown jewel for investors.

According to KeyBanc analyst Brent Bracelin, Amazon AWS and Microsoft Corp. (MSFT) Azure are breaking away from the pack and dominating the booming cloud services market. Bracelin recently examined the top infrastructure-as-a-service and platform-as-a-service providers and found that Amazon is still light years ahead of the competition. AWS currently operates at a $20 billion annual revenue run rate, and its cloud growth has accelerated to about 45 percent.

Microsoft is a distant second, at a run rate of only $6.5 billion, but its 98 percent growth rate suggests it is gaining on Amazon.

Beyond the big two, Alphabet (GOOG, GOOGL) Google Cloud is a distant third, with an annual run rate of only $2 billion, roughly 10 percent the size of AWS.

Bracelin says the massive size of AWS and its incredible growth rate make it a unique asset for long-term investors. He says AWS revenue should double by 2020.

"Based on current cloud momentum, new products and customer feedback at the AWS Summit SF, we remain confident in our forecast that AWS revenue could double to $41 billion in 2020 from the $20 billion-plus run rate today," he says.

KeyBanc is projecting a 20 percent compound annual growth rate in incremental revenue for AWS over the next three years.

KeyBanc isn't the only firm that appreciates the value of Amazon's cloud business. Bank of America analyst Kash Rangan says the global cloud services business will continue to grow at a CAGR of 25 to 30 percent for at least the next five years and grow to a total market size of $155 billion over that time.

Of that total market, Rangan expects Amazon to retain about 45 to 50 percent market share, followed by Microsoft at 28 to 30 percent, and Google at 10 to 12 percent. Ultimately, Rangan expects the global cloud services business could be worth as much as $300 billion.

KeyBanc has a "sector weight" rating for Amazon. Bank of America has a "buy" rating and $1,650 target for AMZN stock.

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