Amazon & Microsoft: Are These Cloud Computing Leaders in a Growth Slowdown?

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"The cloud" and "cloud computing" have become incredible buzzwords. It seems most people are floating around the idea, as the term ambiguously suggests, but don't seem to have a grasp on how the cloud functions.

Believed to be invented by American psychologist and computer scientist J.C.R. Licklider in the 1960's, cloud computing was created to connect data for people between locations and times. Now, this technology has vastly grown and made publicly available by industry leaders Amazon AMZN and Microsoft MSFT .

What is the Cloud?

In basic terms, cloud computing is accessing and storing data over the Internet. To the end user, benefits of the cloud include: the ability to deliver and manage their own computer resources, scale up or scale down computing levels as needed, and only pay for the amount of computing power they use.

Synergy Research Groupshows cloud vendor revenues reached $148 billion in 2016, which accounts for 25% annualized growth. Clearly, this is a vast and fast growing space. Leaders in the movement are changing the traditional notion of accessing data through hardware by introducing the idea of retrieving data through space, or the cloud.

At the end of the day, this data needs to be stored somewhere. Companies which offer cloud computing services allocate massive and secure servers to store the data being held in the cloud. Even though cloud data is not being stored in users' personal hard drives, is it held somewhere and may be vulnerable to failures.

With the rate of growth this technology is flying at, it seems cloud computing will soon take over the necessities of personal hard drive space. The two popularly known leaders of the cloud computing business are known to be: Amazon with AWS (Amazon Web Service, Inc) and Microsoft with Azure.

How Fast are the Amazon and Microsoft Growing?

Amazon's cloud computing service, AWS, launched in 2006. They advertise themselves to deliver large computing capabilities and capacities which cost less and take less time than a company building physical servers. As of 2016, AWS offers more than 70 services.

Year over Year (Y/Y) growth of AWS sales for Amazon were increasing until, and as of now peaked on, Q2 of 2015 at 81%. Since, AWS revenues have been seeing high growth, but not to the level it once did. In Q4 of 2016, Y/Y net sales growth for AWS was 47%.

A similar story is shown with Microsoft's Azure. Y/Y revenue growth (GAAP) of their Azure business capped, to date, in Q2 of 2016 at 127% growth. Just like AWS, the later quarters show sales growth at a decreasing rate with Q4 2016 Y/Y revenue growth (GAAP) at 93%.

So… Who Cares?

Two of the leaders in cloud computing platforms have not been able to increase their sales growth of their respective cloud businesses. In an industry which is infamous for how fast it is expanding into the hands of businesses and individuals, these numbers are concerning.

It looks like the maximum potential for Amazon's and Microsoft's sales growth for their cloud computing businesses have capped. Unless either company releases break through cloud computing technology or breaking price points, their sales growth rates look to continually decrease considering current levels.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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