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3 Stocks to Buy on Rising Cloud Infrastructure Spending

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The cloud infrastructure market was already doing great and the pandemic provided it a further boost. The pandemic saw millions working, learning, playing and shopping from home, which helped the cloud business grow further.

Given that the pandemic is far from over and people are still reeling under fears of the coronavirus, cloud business is only going to grow further. This has seen major players shelling out billions of dollars to expand their cloud services.

Cloud Infrastructure Spending Growing

According to a new report from Synergy Research Group, the past-year-and-a-half has seen billions of dollars getting invested by companies to enhance their cloud business. The report mentions that the cloud ecosystem market recorded revenues of $235 billion globally in the first half of 2021.

The cloud infrastructure services accounted for $150 billion or 63% of this total amount. The cloud infrastructure services include software-as-a-service (SaaS), infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS) and hosted private cloud services.

Although the pandemic has somewhat eased this year, the work and learn-from home trend is still continuing. In fact, the pandemic has made millions dependent on technology, which is further helping the cloud services market. According to the report, revenues from cloud infrastructure services grew 37% year over year in the first half of 2021.

Of this, revenues from SaaS grew over 25%. Besides spending on colocation, leasing and data centre construction grew by 17% in the first half of this year.

As more people worked and learned remotely, demand for storage soared. This made organizations shift focus to building business resiliency. Several companies started to accelerate their digital transformation, which made them adopt and consume cloud services.

Cloud Market Poised to Grow

Since the onset of the pandemic the concept of working, learning and shopping has changed. This has seen companies fast adopting SaaS. At the same time, most businesses are shifting data and information to technological and digital platforms to safely remain afloat amid this competition. This, in turn, is benefiting the cloud business.

And to keep things going cloud providers are boosting infrastructure spending.

A separate report form Canalys shows, global cloud infrastructure spending hit $47 billion in the second quarter, growing 36% quarter over quarter. This means expenditure was higher by over $5 billion in the second quarter and more than $12 billion on a year-over-year basis.

Increasing spending has led to companies earning higher revenues, with big players leading the race. According to Canalys, the top three cloud service providers in the second quarter were Amazon.com, Inc.’s (AMZN - Free Report) Amazon Web Services (AWS), Microsoft Corporation’s (MSFT - Free Report) Microsoft Azure and Alphabet, Inc.’s (GOOGL - Free Report) Google Cloud.

According to a report from IDC, spending on compute and storage cloud infrastructure is expected to witness a CAGR of 11.3% from 2021 to 2025.

Our Choices

Box, Inc. (BOX - Free Report) is a provider of a cloud content management platform. The platform enables internal and external collaboration on content, automation of content-driven business processes, development of custom applications, data protection, security and compliance features.

The company’s expected earnings growth rate for the current year is 15.7%. The Zacks Consensus Estimate for current-year earnings has improved 5.7% over the past 60 days. Box carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Microsoft Corporation is one of the largest broad-based technology providers in the world.  It is also a public cloud provider that can deliver a wide variety of IaaS and PaaS solutions at scale.

The company’s expected earnings growth rate for the current year is 8.4%. The company’s shares have gained 7% in the past three months. Microsoft carries a Zacks Rank #2.

Alphabet Inc. is one of the most innovative companies in the modern technological age. Over the last few years, the company has evolved from primarily being a search-engine provider to cloud computing, ad-based video and music streaming, autonomous vehicles, healthcare providers and others.

The company’s expected earnings growth rate for the current year is 73.8%. The company’s shares have gained 10.1% in the past three months.  Alphabet carries a Zacks Rank #2.


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