3 trillion growth stocks to buy now
JThe stock market is currently on earnings alert for the quarter ended June 30, and so far results have been stronger than Wall Street expected. Investors rejoiced as they sent the heavy tech Nasdaq-100 12.5% higher index in the past month alone.
But some of the biggest trillion-dollar tech companies right now, namely Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG)and Amazon (NASDAQ: AMZN)share a common theme: their growth is driven by their respective cloud services businesses.
The cloud is growing rapidly in scope and value, with an estimate from Grandview Research suggesting it could represent a $1.5 trillion annual opportunity by 2030. Here’s how investors could capture a slice of that pie by owning these three tech giants.
1. Microsoft: Provides cloud products for businesses and consumers
Cloud computing is an ever-expanding technology that was created to meet the needs of businesses, helping them store data and migrate their operations online to adapt to the digital economy. But it’s now just as common in consumer applications. In Microsoft’s case, the cloud has transformed the company’s Office 365 document suite into a powerful platform for real-time collaboration. And its OneDrive cloud storage solution provides access to personal files from anywhere, anytime.
But Azure, Microsoft’s flagship cloud services platform for enterprises, is driving the company’s Intelligent Cloud segment. This is one of the main reasons Intelligent Cloud has become the largest of Microsoft’s three business units by revenue. Azure serves 95% of Fortune 500 companies in one way or another through 200 products and solutions, ranging from simple data storage to complex tools powered by artificial intelligence.
The quarter ended June 30 marked the last of Microsoft’s fiscal year 2022, and intelligent cloud revenue grew 25% to $75.2 billion for the year compared to fiscal year 2021. It This is a much faster growth rate than the 18% generated by the rest of the company. overall, with total revenues exceeding $198 billion. But Intelligent Cloud was certainly supported by Azure, which climbed 45% over the period.
Azure is widely considered second best in reach and revenue to Amazon Web Services (AWS), but its recent growth rate suggests it could catch up.
2. Alphabet: Its Google Cloud is small, but growing fast
Alphabet is one of the most diverse companies in the technology industry, with a range of business units across software and hardware. It is best known for its flagship brand, Google, which is responsible for the most successful search engine in the world, currently holding a global market share of 91%.
But it was Google Cloud that generated the fastest growth in Alphabet’s recent second quarter of 2022, in part because a slowing economy hurt demand for advertising, where the company generates the mainstay of its income. Nonetheless, Google Cloud generated $6.3 billion in the second quarter, representing 35% year-over-year growth, a much faster pace than the company as a whole, which saw a 13% revenue increase.
But Google Cloud only accounted for 9% of Alphabet’s $69.7 billion total revenue base in the quarter, so it’s still a relatively small part of the business. However, this was a jump from the same period last year, when the segment accounted for 7.4% of total revenue, so it is gradually making a larger contribution.
Like Microsoft, Google serves consumers through standalone cloud products like Drive (for file storage and sharing) and its document suite. But Google Cloud is first and foremost a business services platform that now provides solutions to more than a dozen industries.
Google Cloud’s growth is a great reason to buy Alphabet stock, but there are plenty of others that make it extremely attractive right now.
3. Amazon: AWS remains ahead of the pack
When it comes to cloud services, only one vendor stands at the top of the mountain. Amazon Web Services (AWS) dominates the space in terms of revenue and currently provides solutions to over 20 industries. It has the most diverse set of offerings and the ability to meet the needs of businesses of all sizes, from small start-ups to multinational corporations.
The true value of AWS is evidenced by its responsibility for all of Amazon’s operating revenue over the past four quarters. It’s true – despite contributing just $72 billion to Amazon’s $485 billion in total revenue over the past 12 months, AWS is the profit engine of the entire company.
During the recent second quarter of 2022, AWS also led Amazon’s growth. Segment revenue grew 33% year-over-year, compared to just 7% for the company as a whole.
The profitability gap likely won’t last forever as Amazon’s e-commerce business temporarily falls victim to inflationary pressures and a weaker consumer. The company also hasn’t disclosed how profitable its burgeoning advertising business is. However, it generated $8.7 billion in sales for the quarter and grew 18%, which was also much faster than Amazon as a whole.
One thing seems clear right now: AWS continues to deliver both good and bad results. As a leader, he is in the best position to take advantage of the cloud’s transition to a multi-trillion dollar opportunity in the future, and that alone makes Amazon stock worth buying.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Anthony Di Pizio has no position in the stocks mentioned. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon and Microsoft. The Motley Fool has a disclosure policy.
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