Amazon Is Still The Undisputed King Of Cloud

Accelerated cloud adoption has led to dizzying growth in IaaS revenues in 2020, and Amazon remains the number one player in the space. Here is why this matters to Amazon stock investors.
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Last year was outstanding for cloud infrastructure, as the industry generated over $60 billion in revenues globally. At least this is what Gartner’s most recently issued report suggests. IaaS sales grew a whopping 41% over 2019, driven by an acceleration in cloud adoption.

One of the great beneficiaries of the cloud trends has been Amazon  (AMZN) - Get Amazon.com, Inc. Report. The company, through its Amazon Web Services division, produced over 40% of the total industry revenues, reinforcing its status as the undisputed king of cloud infrastructure in the world.

Figure 1: Amazon Web Serviced (AWS).

Figure 1: Amazon Web Serviced (AWS).

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A look at the numbers

The table below summarizes Gartner’s findings about cloud IaaS. Amazon’s revenues, at $26.2 billion, were more than double Microsoft’s, the number two player in the space. All other competitors combined, Microsoft aside, produced less in IaaS revenues than Amazon.

The worse news for Amazon is that its market share has declined noticeably since 2019. The company used to control nearly 45% of the industry but lost roughly four percentage points in 12 months. It looks like each of the next four competitors nibbled away at Amazon’s dominance in 2020.

Figure 2: Worldwide IaaS public market cloud services market share, 2019-2020.

Figure 2: Worldwide IaaS public market cloud services market share, 2019-2020.

Worth noting, the table above addresses cloud infrastructure only, which I estimate to represent at least 60% of Amazon Web Services revenues. Not listed are cloud platform (PaaS) and packaged software (SaaS) – the latter of which Amazon is not a large player in.

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Why cloud matters

Cloud adoption is one of those secular trends of the past decade – along with the internet in the 1990s, big data and connected devices in the 2000s – that has reached escape velocity. Gartner has offered the following quote that supports the idea:

“The era of CIOs investing in cloud IaaS and PaaS discretely is long over. Cloud market will continue to grow, [and] the real opportunity for providers comes from growth in cloud-adjacent technology markets such as edge, 5G and AI.”

For the revenue growth opportunities alone, cloud is an important factor in Amazon’s success. But what some may still not know is that AWS, representing only 12% of Amazon’s revenues in 2020, accounted for nearly 60% of the company’s operating profits. And probably even more so than e-commerce, Amazon’s cloud business is likely to see margins expand with gains of scale.

Therefore, for as long as the table above continues to look good, the Seattle-based cloud giant will likely see profits and cash flow rise – and Amazon stock should benefit.

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Twitter speaks

Amazon still controls a whopping 41% of the cloud infrastructure market – but this number declined from nearly 45% one year earlier. How would you describe Amazon’s cloud business?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)