10 Tech Companies With Big Cloud Businesses

Editors' pick: Originally published Feb. 10.

Cloud services are increasingly becoming a material part of business for many tech companies, especially to those that may be struggling with revenue growth from more traditional businesses.

"Enterprises are increasingly moving application workloads to the cloud in lieu of replacing older IT systems or building new data centers," Pacific Crest Securities analysts Brent Bracelin and Alyssa Johnson wrote in a note to clients last week. Pacific Crest Securities is a division of KeyCorp. In 2015, the adoption of cloud services by large businesses "created a market tipping point in 2015. Cloud is increasingly material and matters."

As a result, investors should consider 2016 as the kick off for another major investment cycle to support further cloud adoption. Companies including Microsoft, Amazon and Alphabet, among others, noted that they are boosting resources to cloud services this year. Pacific Crest Securities analysts are projecting that capital expenditures in 2016 for cloud services by the top 20 companies offering cloud services could rise 21% year-over-year to $62.7 billion.

Cloud computing, commonly referred to as "the cloud," is the "delivery of on-demand computing resources-everything from applications to data centers-over the Internet on a pay-for-use basis," as described by IBM. There is a business-to-consumer segment, where Facebook and Google, for instance, have significant offerings, such as Google's Gmail and Google Drive and Facebook's photo storage options. And then there is the business-to-business cloud segment, which Pacific Securities estimates that revenue for the top 10 largest cloud providers there is nearing $42 billion on an annualized basis - a figure that is growing 51% year over year and 9% sequentially.

Research firm IDC forecasted that global spending by companies on public cloud services will rise 19.4% on a compound annual growth rate to $141 billion by 2019.

Software as a Service, or SaaS, is slated to remain the preferred cloud computing type, capturing more than two thirds of all public cloud spending by 2019, IDC said in January. However, IDC noted global spending by companies on Infrastructure as a Service, or IaaS, and Platform as a Service, or PaaS, will grow at a faster rate than SaaS with five-year CAGRs of 27% and 30.6%, respectively.

By 2018, most software vendors will have fully shifted to the cloud as a software or platform service. "This means that many enterprise software customers, as they reach their next major software upgrade decisions, will be offered SaaS as the preferred option. Put together, new solutions born on the cloud and traditional solutions migrating to the cloud will steadily pull more customers and their data to the cloud," said Frank Gens, IDC's chief analyst, in the January press release.

It will be large companies driving more than half of the spending on cloud services, but small and mid-size businesses will also be significant contributors to the overall spending, IDC said. 

Here are the top 10 companies that are generating high revenue from cloud services in the enterprise space. Pacific Crest Securities determined annualized revenue based on fourth-quarter revenue figures and estimates for those that haven't reported results yet.


10. NetSuite (N)

NetSuite is a vendor of cloud computing business management software suites. The company caters to businesses in retail, wholesale distribution, manufacturing and non-profit sectors.

NetSuite enables companies to "manage core key business operations in a single system, which includes Enterprise Resource Planning (ERP), Accounting, Customer Relationship Management (CRM), and Ecommerce," according to its website.

NetSuite's fourth quarter annualized cloud revenue is $800 million, up 31% year over year, according to Pacific Crest Securities. While the San Mateo, Calif.-based company plans to spend roughly $50 million on cloud capital expenditures in 2016 (flat compared to 2015), the analysts expect CapEx to be around $54 million this year.


9. Workday (WDAY)

Workday provides enterprise cloud applications for finance and human resources companies in the United States and internationally. It offers applications for customers to manage critical business functions that enable them to optimize their financial and human capital resources.

Workday's fourth quarter annualized cloud revenue is approximately $1.2 billion, up 42% year over year, according to Pacific Crest Securities.

Pacific Crest expects the Pleasanton, Calif.-based company to spend roughly $177 million, an increase of $30 million, on cloud capital expenditures in 2016.

Workday plans to report fiscal 2016 results on Feb. 29.

Workday's executives have a storied history in the tech industry. In the late 1980s, Workday Chairman and co-founder Dave Duffield co-founded PeopleSoft -- essentially a predecessor to Workday. He hired Aneel Bhusri (now Workday's CEO) to join him at PeopleSoft and the company grew to be the world's second largest application software company, before it was acquired by Oracle in 2005 in a hostile takeover. The two founded Workday in 2005. 


8. Google Compute (Alphabet (GOOG) (GOOGL) )

Alphabet offers many cloud-based services, both consumer and specifically to businesses. Google's large consumer cloud business includes Gmail and Google Drive, for instance. Google Compute Engine is Google's (Alphabet's) infrastructure as a service platform (IaaS). The services allows clients to run workloads on Google's physical hardware.

Google Compute's fourth quarter annualized cloud revenue is approximately $1.8 billion, more than doubling year over year, according to Pacific Crest Securities.

Pacific Crest estimates the company's cloud CapEx for its entire cloud businesses (not just B2B) to be $11.4 billion in 2016.

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7. Rackspace Hosting (RAX)

Rackspace Hosting is a cloud computing and hosting company.

Rackspace's fourth quarter annualized cloud revenue is approximately $2.1 billion, up 14% year over year, estimates Pacific Crest Securities.

Pacific Crest expects the San Antonio-based company to spend roughly $500 million, an increase of $22 million, on cloud capital expenditures in 2016.

San Antonio-based Rackspace will report fourth quarter results on Feb. 16.

Rackspace was nominated by TheStreet as a "Worst Stock in the World," as it's facing steep competition from Amazon, IBM, Alphabet, and Microsoft and others. Shares of the company have fallen just over 45% over the last two years, even as it has tried to reinvent itself as more of a hosting company.


6. SAP (SAP)

SAP, a German software and services provider, has been ramping up its cloud-based business through acquisitions, such as its 2012 purchase of Ariba, as well as partnerships, such as IBM, to sell cloud-based services.

SAP's fourth quarter annualized cloud revenue is approximately $2.5 billion, more than double the year before, according to Pacific Crest Securities estimates.

Pacific Crest expects SAP to spend roughly $812 million on cloud capital expenditures in 2016, up from $682 million in 2015.

The company had strong growth in its cloud business in 2015, it said in January as part of its preliminary earnings results. 


5. Oracle (ORCL)

Oracle offers a comprehensive and fully integrated stack of cloud applications, platform services, and engineered systems.

Its cloud products specifically comprises a "comprehensive portfolio of integrated cloud solutions for business, IT, and development needs, including software as a service (SaaS), platform as a service (PaaS), infrastructure as a service (IaaS), and data as a service (DaaS)," according to its website. "Oracle Cloud helps businesses offload IT management so that they can focus on their priorities."

One of Oracle's biggest rivals in the cloud software space is Salesforce (also on this list), started by Oracle Chairman Larry Ellison's protege, Marc Benioff in 1999. Ellison and Benioff have had quite the on again-off again relationship the tech media loves to cover. 

On Feb. 9, Oracle announced the Oracle PartnerNetwork (OPN) Cloud Program, designed to help the company gain more mid-size and small businesses. Oracle is known for serving large business customers.

Oracle's fourth quarter annualized cloud revenue is approximately $2.6 billion, up 26% year over year, according to Pacific Crest Securities estimates.

Pacific Crest expects Oracle to spend roughly $1.02 billion on cloud capital expenditures in 2016, down from $1.6 billion in 2015.


4. IBM (IBM)

IBM provides information technology (IT) products and services worldwide. The Armonk, N.Y.-based company manufactures and markets computer hardware, middleware and software; offers infrastructure, hosting and consulting services in areas ranging from mainframe computers to nanotechnology.

IBM's fourth quarter annualized cloud revenue is approximately $5.3 billion, up 51% from the year before.

Pacific Crest expects IBM to spend roughly $3.73 billion on cloud capital expenditures in 2016, down slightly from $3.77 billion in 2015.


3. Salesforce.com (CRM)

The Benioff-led Salesforce, which focuses on customer relationship management, had fourth quarter annualized cloud revenue of approximately $7.2 billion, up 24% from the year before.

Pacific Crest expects Salesforce to spend roughly $391 million on cloud capital expenditures this year, up from $315 million in 2015.

Salesforce will report its fiscal fourth-quarter 2016 results on Feb. 24.


2. Microsoft (MSFT)

The company may be known for its Windows and Xbox products, among other things, but Microsoft also has a significant cloud business. CEO Satya Nadella has prioritized cloud services and mobility initiatives to keep Microsoft relevant in the rapidly changing tech landscape and it shows.

Microsoft's fourth quarter annualized cloud revenue is approximately $8.5 billion, up 65% from the year before.

Pacific Crest expects Microsoft to spend roughly $8.9 billion on cloud capital expenditures this year, up from $6.5 billion in 2015.


1. Amazon (AMZN)

Even though it's known for being the world's largest e-commerce retailer, Amazon has a significant cloud computing business.

Amazon's cloud business, Amazon Web Services, is a "secure cloud services platform, offering compute power, database storage, content delivery and other functionality to help businesses scale and grow," according to the online retailer's website. The company claims more than 1 million startups, enterprise businesses and public sector organizations use AWS.

Amazon, for the first time, broke out revenue for its AWS business last year, which excited investors and an article by TheStreet's Chris Ciaccia explains why. 

Amazon's AWS fourth quarter annualized cloud revenue is approximately $9.6 billion, up 69% from the year before, according to Pacific Crest securities.

Pacific Crest expects Amazon to spend roughly $6.8 billion on cloud capital expenditures this year, up from $4.6 billion in 2015.

Amazon has been cutting prices on its AWS offering in order to get an edge on the competition -- in January it cut prices for the 51st time.

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