One way to understand where a company – especially one involved in technology – sees its next revenue stream coming from is to examine where the research and development (R&D) dollars are going.
Four tech giants, Apple Inc. (NASDAQ:AAPLC), Amazon.com (NASDAQ:AMZNB), Alphabet Inc. (NASDAQ:GOOGC) and Microsoft Corp. (NASDAQ:MSFTC) have been spending on cloud computing to the tune of $45.3 billion so far this year. That investment represents a healthy double digit bump compared to a 6% increase in 2015, according to RBC Capital.
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Breaking Down Cloud Spending
Apple is expected to make the largest actual buy at $12.9 billion. This represents a 10.6% increase from 2015.
With an increase of 20% and an investment of $5.5 billion, Amazon does not intend to be left behind in an area it sees as fast growing and potentially profitable.
Alphabet’s $10.5 billion expected buy represents a 6.4% boost for that company over last year.
Finally, rounding out the tech quartet, Microsoft is expected to chip in a 25% increase from last year of $8.1 billion.
What Companies Are Getting
For Apple, its services business, including Apple Music, the App Store and iCloud was the only segment that saw year-over-year growth in Q3. The entire segment recorded $5.9 billion in revenue, up 19%, making it the second largest unit at Apple.
Amazon.com is riding high after having just reported its third consecutive record profit. Included in the company’s 31% revenue jump was a 58% gain in Amazon Web Services cloud computing unit.
Meanwhile, Alphabet’s Google nonadvertising sales boost of 33% was driven by the company’s cloud business involved in hosting other companies’ data. Alphabet is clearly betting the cloud has much more to offer in terms of revenue growth.
Finally, Microsoft recently beat investor expectations citing strong growth in its cloud-based businesses. Key to success for companies like Microsoft is the shift of IT to a cloud-based architecture.
Why It Matters
It’s not just all about driving revenue growth. It’s also about the future of computing and technology and that future includes the Internet of Things (IoT). Essentially it involves creating an interconnected world, powered by communications, data and analytics.
The cloud is critical to the development of the IoT. Some analysts and experts believe companies like Apple, Alphabet, Amazon and Microsoft are not investing fast enough. They see constraints on the infrastructure that in their minds have reached a critical stage.
Challenges And Solutions
Among the issues companies like those mentioned earlier need to solve is storage and processing of the vast amounts of data already available in the cloud.
Another important issue is security. Hacking and security breaches are a major part of the reason many users don’t trust the Internet. The cloud does not instill confidence in that regard.
Fortunately, problems like these always have solutions. The question is, who will solve them first and best? The answer to that question is where investors should be looking to make their bets as the IoT and the cloud become an even more important part of consumers’ lives.