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Cloud Computing 101: Key Trends and Market Impact
Cloud Computing Market Research
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Cloud computing has become an increasingly popular trend in recent years, and its adoption has only accelerated since the outbreak of the COVID-19 pandemic.
This market research edition aims to provide a comprehensive introduction to cloud computing for beginners, explore the ways in which cloud computing has impacted the market, highlighting key trends and companies that investors should be aware of.
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Cloud computing is a model for delivering computing resources over the internet as a service, rather than a product. This means that instead of having to purchase and maintain physical servers and data centres, companies can access the computing power and storage they need through third-party cloud service providers.
There are three main types of cloud computing services: Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS).
Infrastructure as a Service (IaaS): IaaS provides users with virtualized computing resources, such as servers, storage, and networking, over the internet. Users can rent these resources on a pay-per-use basis and have complete control over their virtual infrastructure, allowing them to build and deploy their own applications and services.
Platform as a Service (PaaS): PaaS provides users with a complete development and deployment environment in the cloud, including tools, middleware, and libraries for building, testing, and deploying applications. Users can focus on developing their applications, while the cloud provider handles the underlying infrastructure.
Software as a Service (SaaS): SaaS provides users with ready-to-use applications that are hosted and managed by the cloud provider. Users can access these applications over the internet through a web browser or Application Programming Interface (API), without having to install or maintain any software themselves.
There are also several deployment models for cloud computing, including public cloud, private cloud, and hybrid cloud.
Public cloud: Public cloud services are offered over the internet by third-party providers and are accessible to anyone who wants to use them. Users can access these services through a web browser or API and pay for what they use on a pay-per-use basis. Public cloud services are often the most cost-effective option, as users do not need to invest in any infrastructure or hardware themselves.
Private cloud: Private cloud services are dedicated to a single organization and are not accessible to anyone outside of that organization. Private clouds can be hosted on-premises or in a third-party data center and are often used by organizations that need to comply with strict security or regulatory requirements.
Hybrid cloud: Hybrid cloud services combine both public and private cloud services, allowing organizations to take advantage of the cost-effectiveness of public cloud services while still maintaining control over their most sensitive data and applications. Hybrid cloud services can be challenging to manage, as they require coordination between multiple cloud providers and on-premises infrastructure.
Now that we know what cloud computing is and how it works, let's explore the latest trends and what benefits it brings to the table.
The trend of cloud computing consistently growing in the coming years is supported by various studies and reports. Here are some key data points:
The global public cloud services is forecast to grow 20.7% to total $591.8 billion in 2023, up from $490.3 billion in 2022, according to the latest forecast from Gartner, Inc. This is higher than the 18.8% growth forecast for 2022. (Source)
The global cloud computing market is expected to grow at a CAGR of 14.1% from 2023 to 2030, reaching a market size of $1,554.9 billion by 2030, according to a report by Grand View Research. (Source)
In a survey of 750 IT decision-makers conducted by Flexera, 87% of respondents said that their organizations have a multi-cloud strategy. (Source)
The healthcare industry is one of the fastest-growing segments of the cloud computing market, with a projected CAGR of 17.4% from 2022 to 2028. (Source)
The COVID-19 pandemic has accelerated the adoption of cloud infrastructure, with remote work and digital transformation initiatives driving the need for cloud-based solutions. According to a report by Canalys, the global cloud infrastructure services market grew by 33% in Q2 2020 compared to the same period in 2019. (Source)
3. Value Proposition
Cloud computing has had a significant impact on the economics of the technology industry, both for cloud service providers and for businesses that use cloud services. Here are some of the value propositions:
Cost savings: Cloud computing can offer significant cost savings to businesses by reducing the need for on-premises hardware and infrastructure. A study by Gartner found that the total cost of ownership (TCO) of cloud infrastructure is typically lower than that of on-premises infrastructure for most workloads. (Source)
Scalability and flexibility: Cloud infrastructure can also offer businesses greater scalability and flexibility, allowing them to easily adjust their infrastructure to meet changing demands. A study by IBM found that businesses that use cloud infrastructure can deploy new applications up to 2.3 times faster than those using traditional infrastructure (Source).
Innovation: Cloud infrastructure can also enable greater innovation, as businesses can more easily experiment with new technologies and services without the need for significant upfront investments in hardware and infrastructure. (Source)
Industry disruption: Cloud infrastructure has the potential to disrupt industries and business models by enabling new ways of delivering services and products. For example, cloud-based platforms such as Uber and Airbnb have disrupted traditional transportation and hospitality industries. According to a report by McKinsey, cloud infrastructure is expected to enable new business models and generate up to $3 trillion in value for the economy by 2030. (Source)
Now it’s time to take a look at what all of this means for those who invest in stocks. There are several companies that are poised to benefit from the trend of increased cloud computing adoption. Here are some of the top stocks in this sector:
Amazon (Ticker: AMZN ): Amazon is a major player in the cloud infrastructure market through its Amazon Web Services (AWS) platform. AWS is the largest cloud infrastructure provider in the world, with a 32% market share as of Q4 2022, according to data from Statistica (Source). In Q4 2022, AWS reported revenue of $21.4 billion, a 20% increase year-over-year (YoY).
Microsoft (Ticker: MSFT): Microsoft's Azure cloud platform is the second-largest cloud infrastructure provider, with a 23% market share as of Q4 2022. In Q4 2022, Microsoft reported commercial cloud revenue of $21.5 billion, a 18% increase year-over-year (YoY). Within this, Azure grew 31% YoY.
Alphabet (Ticker: GOOG): Alphabet's Google Cloud platform is the third-largest cloud infrastructure provider, with a 10% market share as of Q4 2022. In Q4 2022, Google reported cloud revenue of $7.3 billion, a 32% increase YoY
Alibaba (Ticker: BABA): Alibaba is a Chinese e-commerce company that offers cloud infrastructure services through its Alibaba Cloud platform. In Q4 2022, Alibaba Cloud reported revenue of $2.9 billion, a 3% increase from the same period in the previous year.
These companies are well-positioned to benefit from the continued growth of the cloud however investors may consider adding exposure by investing in ETFs that focus on cloud infrastructure or technology.
The First Trust Cloud Computing ETF (SKYY), which tracks the ISE Cloud Computing Index is one such ETF which includes companies involved in cloud computing software, platform, infrastructure, and services. The ETF has a total net asset value of $2.6 billion but has significantly underperformed the market, returning 20% over the past 5 years (S&P: 42%).
Thinking outside the box, investors could consider companies that have leveraged cloud computing to disrupt other industries such as Uber and Airbnb as mentioned earlier. There are many ways that investors could look to play this trend.
Finally, I leave you with a quote from a previous IT colleague of mine which lives long in the memory:
There is no cloud, it’s just somebody else’s computer
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