Move over "FANG," there's a new acronym in town. The latest buzz on Wall Street surrounds the four best performing enterprise tech stocks: "MAGS," or Microsoft MSFT , Amazon AMZN , Google GOOGL , and Salesforce CRM .
The term was first coined this week by Deutsche Bank, and Business insider reported on it here . Simply put, these four stocks have significantly outperformed the rest of the large-cap tech companies in 2015.
Together these companies have a combined market cap of $1.3 trillion and have grown about 50% in share price on average this year. Here is a graphic from Deutsche Bank that illustrates this growth:
The most interesting thing about these companies is that the vast majority, if not all, of their enterprise-level offerings are cloud-based products. With cloud computing still in its infancy, these already successful stocks could still have a lot of room to grow.
It's been a great year for the MAGS stocks, but with 2016 just weeks away, investors will be interested to see if these companies can keep this momentum going in the New Year. Today, we'll take a look at each stock to see which is poised to be the leader in cloud computing.
It's definitely a tight race at the top, and the best pick for next year will really depend on what investors are most interested in. Let's start by looking at Microsoft, the slowest grower of the four this year.
Currently, Microsoft has a Zacks Rank #3 (Hold). Based on next year's current earnings estimates, we expect Microsoft to see about 10% earnings growth. In the past 60 days, we've seen eight positive estimate revisions and three negative revisions for the company's fiscal 2016 earnings.
Microsoft's Azure software has been around since 2010 and it has picked up a nice following in the cloud computing community through the years. However, the big problem with Microsoft is diminishing revenues from its other segments.
The company has definitely realized that the demand for PCs is not what it used to be and its choice to make Windows 10 a free upgrade shows its new strategy. Microsoft is banking on new micro-purchases within Windows 10, and it has also made moves in hardware with the launch of its first laptop-the Surface Book.
The second slowest grower this year, Salesforce, has a much different story. Currently, Salesforce has a Zacks Rank #2 (Buy). Within the past 60 days, we've seen nine positive estimate revisions and just one negative revision for the company's fiscal 2016. Based on these current estimates, we expect Salesforce's earnings to grow by as much as 91%.
Salesforce has been a leader in enterprise software for a long time, and its product line is well known and widely used. The company has a wide variety of cloud-based products that target everything from sales and marketing to analytics and the Internet of Things.
Salesforce's success has been driven by its innovation, which has always been a key point of CEO Marc Beinoff's leadership. Beinoff encourages employees to innovate and grow within the company, and Salesforce's internal product tracking is incredible. With that said, Salesforce currently only brings in about 27% of its revenue from outside of North America and the company needs to work on growing its international presence.
Google is also a really interesting company in the cloud world right now. Currently, Google has a Zacks Rank #3 (Hold). In the past 60 days, we've seen five positive estimate revisions and six negative revisions for the company's annual earnings in 2016. Based on current estimates, Google is expected to see about 20% earnings growth.
In some ways, Google almost doesn't fit in with these companies. Its cloud offerings, especially at the enterprise level that we are focusing on here, are probably the least notable in the MAGS group. However, Google is increasing its focus on this segment and has brought people on board, such as former VMWare CEO Diane Greene, who can help improve this aspect of the company. Some analysts have also kicked around the idea that Google should acquire a cloud company like Salesforce.
Finally, the big winner this year: Amazon (AMZN). Currently, Amazon has a Zacks Rank #2 (Buy). Amazon stock has grown over 110% this year and that growth is expected to continue. With 10 positive earnings estimate revisions versus just three negative revisions in the past 60 days, Amazon's fiscal 2016 looks to be a good one, and current estimates indicate that Amazon could see earnings growth of nearly 170%.
Amazon's surprise profits this year were fueled by its cloud-based Amazon Web Services (AWS), which help companies develop their online presence with certain tools and templates. AWS has literally taken the world by storm and is considered one of the most important new products in the entire tech sector.
This year, AWS is on pace to bring in about $7 billion in revenue. While that isn't necessarily a major chunk of Amazon's total revenue, it is the segment of the company with the highest margins. E-commerce has always had razor-thin margins and Amazon's rapid expansion has been pricy. It has been great for investors to see a sure-fire profit turner like AWS take off. With that said, AWS isn't a software product, so the other companies are a step ahead of Amazon in that regard.
All of these companies have had great years and it honestly looks like 2016 could continue to be a great year for the MAGS stocks. Of course, every company has room for improvement and investors should keep their eye on the ever-evolving strategies of the MAGS companies.
Regardless, certain metrics do stick out. Right now, stronger Zacks Ranks and better earnings estimate revision activity put Salesforce and Amazon in the lead, but all of these companies will be ones to watch in 2016.