This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Should Rackspace and Other Cloud Computing Stocks be Afraid of Google?

Chris Lau, Kapitall: Google is joining the ranks of stocks offering cloud services, so should competitors be worried?

News that Google (GOOG) is entering the cloud services space spooked investors of cloud computing stocks like Rackspace Hosting Inc. (RAX). Google has taken ts Compute Engine Infrastructure as a Service platform out of beta.

Prices for the cloud services were also cut, setting the stage for a price war against established players. Will investors overreact to the new competition?

Raxspace, Amazon, and Google by the numbers

Click on the interactive charts to see data over time. Sourced from Zacks Investment Research.

From above, the 5% drop in Rackspace on the day of Google’s announcement brings shares back to prices not seen since June 2013. Its forward P/E is 53, compared to 25 for Google and over 70 for fellow cloud computing player Amazon (AMZN).

Rackspace will likely face more pressure from Google as the company supports the OpenStack platform.

Google’s entry into cloud computing is a clear threat to established players. Compute Engine supports Linux, which will also put pressure on Red Hat (RHT). The computing instance is also very powerful: 16-cores and support for intensive data I/O workloads.

But Google’s pressure on Amazon is not likely to be acute at this time. Amazon’s AWS ecosystem is established in the industry, and is entrenched in many companies. Still, investors should watch for further pricing erosion for AWS offerings. The computing industry benefits from lower prices, but shareholders in Amazon and other cloud computing stocks do not.

Cloud solutions are rapidly becoming a commoditized product. This could mean lower prices for end-users. The hard drive industry underwent a dramatic decline in pricing, but demand for storage kept going up. 

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG

Markets

DOW 17,956.55 -81.42 -0.45%
S&P 500 2,099.17 -9.75 -0.46%
NASDAQ 5,017.0140 -43.2320 -0.85%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs