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The Cloud Drives Technology Stocks This Quarter

Analysts and experts have talked at length about the importance of cloud computing and how it would transform the technology sector. But the sense of waiting that underpinned such discussions is now giving way to a sense of arrival.

Several factors are making cloud computing a reality today, the most important of which are an awareness of the resultant cost reductions, awareness of the economic value of processing ever-increasing volumes of data, and recognition of the advantages of sharing resources and having anytime anywhere access to data and information.

Of course, along with all these advantages comes concerns related to privacy and security, which have been further exacerbated by government snooping, gag orders and orders to turn over data in private individual devices or in servers on foreign soil that have in turn made individuals and corporations wary about adopting the cloud.

But technology companies are fighting it out. Microsoft MSFT for one has strongly resisted government demands as have Apple AAPL and Amazon AMZN . Alphabet's GOOGL Google has also been vocal in its opposition. It makes perfect sense when you consider that these are some of the biggest cloud computing stocks that also offer computing and other devices. So they have vested interests at both ends of the networks.

Other players with similar interests are chip makers like Intel INTC , NVIDIA NVDA , Qualcomm and Advanced Micro Devices AMD ; networking companies like Cisco and Juniper; and software/service companies like IBM and Oracle.

Here's a brief glimpse of three cloud companies that just reported December quarter results:

Intel

Intel's results this quarter were driven by both the PC and data center businesses. The PC strength was seasonal and unlikely to be sustained.

Although non-volatile memory had the strongest growth rate of 24.8% and will grow even stronger this year, it currently contributes a lower share of revenue, which equates to fewer incremental dollars. Also, the business is poised to benefit from Intel's strength in the server market.

Data center revenue growth of 8% year over year was helped by platform volume growth of 3% and platform price increase of 4%. Intel has new products in the pipeline and will also be integrating some technology it acquired through Altera, so this year may be less disappointing than the last when enterprise softness skewed expectations.

Microsoft

Microsoft has become a cloud-focused company, impressing analysts and investors alike. The company is making the most of legacy workloads that use its software and its all-new Windows OS, while leveraging Office productivity software and enterprise relationships to post record growth in cloud revenue.

The company reported solid cloud results, with Azure revenue growing 93% (95% in constant currency) and compute usage doubling year over year. Its cloud productivity business also saw strong growth: Office 365 commercial revenue grew 47% (49% in constant currency) with seat growth of 37% and monthly active iOS and Android devices more than doubling to 65 million, Office 365 consumer revenue grew 22% (21% in constant currency) with seat growth of 20.9%.

Dynamics 365 paid seats also more than doubled. Nadella promised commercial cloud annualized revenue runrate of $20.0 billion in 2018 and last quarter's $14.0 billion means that Microsoft is definitely on track to beat or exceed the target.

Alphabet

Alphabet doesn't break out its cloud revenue separately although independent market research data indicates that it is well behind market leader Amazon and even runners up Microsoft. In fact after the December quarter results some analysts have started saying that Microsoft has also started pulling away from the pack in its chase of Amazon.

Alphabet's growth should not be discounted however because while cloud and hardware are lumped together right now, its common knowledge that most of its new hardware has been unavailable for a lot of the time. So the 62% growth in this segment seems to be less on account of hardware sales and more of an indication of strength it is seeing in the cloud.

CFO Ruth Porat has said that cloud, hardware and YouTube subscriptions will be "major revenue drivers for Google in the next several years." This will of course require capital investment, something the company can afford given the way the search business continues to rake in cash. Capex was around $3.08 billion last quarter, that's nearly up by a billion dollars and will mostly be spent on data centers to support its cloud business.

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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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