Amazon and Alphabet, two of the major players in the cloud computing industry, are poised for explosive stock growth in 2024. While 2023 saw a surge in artificial intelligence (AI) stocks, cloud computing is now in the spotlight due to its crucial role in supporting AI development and storing massive amounts of data.
Amazon, known primarily for its e-commerce business, has transformed into a service investment over the past five years. One of its key services is Amazon Web Services (AWS), its cloud computing offering. Currently, AWS holds the largest market share in cloud computing, with approximately 32% of the market, surpassing Google Cloud’s 11% and Microsoft Azure’s 22%, according to Synergy Research Group.
However, AWS has recently experienced a slowdown in growth, resulting in a loss of market share compared to its rivals. The main cause of this slowdown is attributed to inefficient AWS usage by customers, leading to suboptimal spending. To address this issue and prevent the loss of clients to competitors, Amazon stepped in to help optimize spending, which temporarily impacted growth. Nevertheless, recent deals signed by AWS indicate that this trend is coming to an end. With the emergence of new AI workloads, AWS is expected to regain momentum and have a strong performance in 2024. This will significantly contribute to Amazon’s profits and drive the stock to new heights.
Alphabet, the parent company of Google, also split its stock in July 2022, similar to Amazon. While Google Cloud faced similar growth challenges in 2023, it was not as affected as AWS. Moreover, Google Cloud has a significant stake in AI workloads, serving over half of generative AI start-ups as customers. With a growth rate of 22%, Google Cloud is performing well.
Despite its solid growth, Google Cloud is not yet optimized for profits. Unlike AWS, which boasts a 30% operating profit margin, Google Cloud posted a margin of 3.2% in Q3. However, there is still room for improvement, and if Google Cloud achieves a 30% margin, it would contribute an additional 12% to Alphabet’s total operating profits. Although Alphabet is trading at a reasonable price, it sees a massive market opportunity in cloud computing and aims to capitalize on it. With Google Cloud projected to maintain a growth rate of 20% or higher throughout 2024, the compounding effect will likely lead to substantial gains for Alphabet.
In summary, both Amazon and Alphabet’s stocks are set for explosive growth in 2024 due to their involvement in the cloud computing industry. AWS and Google Cloud play crucial roles in supporting AI development, and despite temporary setbacks, their future prospects are promising. By optimizing for profits and capitalizing on the growing market demand, these cloud computing giants are expected to outperform the market in the coming year.
