Written by Ophir Gottlieb and Jason Hitchings. Originally published on news.cmlviz.com
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A COMPETITIVE SHIFT
Businesses across the globe are moving in droves to drop their own server infrastructures and instead to let a few large companies specialize in virtualizing and hosting servers, aka "the cloud", while companies focus their own resources on what makes them unique.
Here's how the market share breaks down from our friends at Statista:
But, while the mega caps thought they had a handle on the competitive field, a new player has entered and a different smaller company may be yet even more disruptive.
A SEISMIC CHANGE
The cloud is a colossal shift, the beginning of a change in the world economy and the structure of business. It is the evolution of technology, and of capitalism.
We're moving out of the Ice Age, the Iron Age, the Industrial Age, the Information Age, to the age of the Cloud.
THE PRIZE FOR THE CLOUD
Projections for cloud computing see the market growing from $80 billion last year, to half a trillion within a decade, according to a study by Wikibon:
The biggest and most successful technology companies in the world are pouring resources into this field. To understand the trend, we must understand the players.
And once we know the players, we can find who is best positioned to rocket higher with this trend.
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Apple's (NASDAQ:AAPL) growth has hit a brick wall. While the company is sitting atop the technology throne, making an almost unfathomable sum from its domination of the devices space, it's no longer a darling of Wall Street.
But, Apple is leveraging its cash flows and injecting massive sums into a spectrum of technologies. Not only are they investing billions, but the rate at which Apple is investing is accelerating. CML Pro will show us just how big their technological bet has become:
$2.5 billion dollars per quarter. Annualized, Apple will be investing more into R&D than the entire economic output of 60 different countries.
While Apple has shifted a part of its iCloud service to Google, this is temporary, Apple is going to enter the cloud business and soon Google, Amazon and Microsoft will be competitors in this area of technology.
Remember, the bearish thesis surrounding Apple falls precisely on the notion that Apple's revenue stream is far too dependent on a single product -- the iPhone. At the same time, one the great bullish theses for Amazon is how it has become a leader in the cloud.
Let's see what happens when Apple enters. We can say one thing with fairly high certainty -- the effect won't be trivial and Apple will enter a booming theme that isn't called the iPhone.
AMAZON AND NETFLIX
Amazon's (NASDAQ:AMZN) cloud product, called Amazon Web Services (AWS), is the dominant player in the field. It's famously known for hosting Netflix's (NASDAQ:NFLX) video streaming, which at peak hours accounts for 30% of the entire United States bandwidth.
Just last week we saw Amazon crush earnings and its stock spike higher. The biggest source of the company's profits is Amazon Web Service. It's now on track to generate $10 billion a year in revenue and the operating income for AWS more than tripled to $604 million. As the NY Times puts it:
The profits from A.W.S. represented 56 percent of Amazon's total operating income, even though the $2.57 billion in revenue from A.W.S. — up 64 percent from a year earlier — amounted to less than 9 percent of total revenue.
Here is the chart of revenue growth for Amazon Web Services (AWS):
If Amazon simply tracks segment growth, its AWS business will grow to $30 billion by 2020. If you're looking for a window into why Apple left AWS and MSFT -- here it is. Apple will enter the business and for now it has no interest in helping out the dominant players.
FACEBOOK'S CLOUD SERVES 2 BILLION PEOPLE
As early as 2012, Facebook announced it was entering the cloud storage realm. Here's a chart of Facebook's users which goes back to 2008. Remember, 10 million users almost brought the company down, today we are looking at nearly 2 billion.
The success wasn't an accident -- Zuckerberg and Facebook were early to grasp the potential and need of Cloud Computing space.
"Now with one billion profiles and counting, Facebook has finally resolved this headache by entirely moving its myriad of operations to the cloud"
We believe Facebook may try to diversify its own revenue stream, which is 96% based on digital advertising and 80% on digital mobile advertising.
Of all the company's involved, Google (NASDAQ:GOOGL) may be the most focused on the future -- that is, innovating the cloud. We know that Google just took a $500 million piece of Apple's iCloud business away from the two leaders, Amazon and Microsoft.
But Google has gone even further. While placing its cloud data centers to sit on water creates a source of cooling and possibly even a source of power, Google has a patent for the project. Here's a rendering from the US Patent and Trademark Office from Google's filing:
Google may be taking the technology behind cloud computing to the absolute ends of human knowledge. We do believe the Apple move is temporary, but it's a vote of confidence for Google's product, no matter how you slice it.
EMC's $59 billion acquistion by Dell is nearly complete, and we just learned that the company wants the cloud business and yet further, it wants to get the largest companies, not the small ones. Here's snippet from Forbes:
EMC is segmenting the cloud market to focus on big Fortune 500 companies, not the startups that helped build Amazon Web Services into the juggernaut it's become over the past 10 years.
EMC is now selling its Virtustream Storage Cloud, a company EMC acquired for its big-business focused cloud business just about a year ago and it has no intention of going small.
TWO OTHER WINNERS
Apple, Google, Amazon, Microsoft and now EMC will duke it out for market share in that half trillion dollar market, but massive opportunity lies elsewhere.
WINNER #1: THE OBVIOUS
Intel reported that it sold $4.1 billion in chips for cloud data centers compared to $8.5 billion for PCs in the recent quarter. It's almost unthinkable, but the cloud is growing so fast, it's already nearing half of the PC market for Intel. But it's not just revenue, its profits:
Operating profit from PC chips was $2.1 billion, down 20 percent from a year ago, while data center chips had an operating profit of $2.1 billion, up 9 percent.
Intel's customers for the cloud: Google, Amazon Web Services, Microsoft and Facebook, as well as Baidu, Alibaba and Tencent of China. According to Edward Jones' Bill Kreher cloud computing will overtake PC chip shipments and the revolutionary change for the hallowed firm is well under way.
This is why everyone will tell you that Intel will be the winner and it will be a winner. But the future, as Google has shown, is far more complex.
Finally, here is the biggest winner, in our eyes:
WINNER #2: THE HIDDEN GEM
The real winner behind the radical cloud computing boom is a mid-sized technology company based in the US. Its chips enable artificial intelligence which can learn and improve without the assistance of human programmers.
Chips are being used to teach machines to think like humans.
Intel's standard central processors are limited when it comes to doing multiple things in parallel, but the company we're focused on literally invented the technology that allows for the fastest and most reliable parallel computing.
Like a Hollywood blockbuster, the drama has built. Apple just hired away this technology company's head of a division. This company already has Google, Tesla (NASDAQ:TSLA), and Amazon as customers. Yes, Tesla's artificial intelligence and self-driving systems are powered by this company.
The 99% market share that Intel controls is vulnerable -- and even a chip off that market share stands to turn into tens of billions of dollars. This crown jewel of technology's future is one of our few "Top Picks" for 2016.
WHY THIS MATTERS
Cloud computing will change everything about the way we use data -- our health, our national security, our streaming video, artificial intelligence and even the entire Internet. While our research pieces provide in-depth coverage of who is likely to dominate this theme, this is only one of CML Pro's precious 'Top Picks.' To find the 'next Apple' or 'next Amazon' we have to get ahead of the curve. This is what CML Pro does. Our research sits side-by-side with Goldman Sachs, Morgan Stanley and the rest on professional terminals, but we are the anti-institution and break the information advantage the top .1% have.
Each company in our 'Top Picks' is the single winner in an exploding thematic shift like artificial intelligence, Internet of Things, drones, biotech and more. In fact, here are just two of the trends that will radically affect the future that we are ahead of:
The Internet of Things (IoT) market will be measured in trillions of dollars as of next year. CML Pro has named the top two companies that will benefit. Then there's cyber security:
Market correction or not, recession or not, the growth in this area is a near certainty, even if projections come down, this is happening. CML Pro has named the single best cyber security stock to benefit from this theme.
These are just two of the themes we have identified and this is just one of the fantastic reports CML Pro members get along with all the visual tools, the precious few thematic top picks for 2016, research dossiers and alerts. For a limited time we are offering CML Pro at a 90% discount for $10/mo. with a lifetime guaranteed rate. Join Us: Get the most advanced premium research delivered to your inbox along with access to visual tools and data that until now has only been made available to the top 1%.
Thanks for reading, friends.