Amazon (AMZN) is still a strong stock to buy, according to analysts highlighting their bullish expectations as the company kicks off its AWS reInvent conference this week in Las Vegas.
The conference, which marks the largest cloud industry event of the year, will carry on throughout the week dotted with hackathons, bootcamps, and partner summits. The event will be headlined by Andy Jassy, CEO of Amazon Web Services, who will deliver a keynote speech on AWS and the cloud infrastructure landscape on Wednesday morning.
"The secular shift to cloud remains one of the most prolific growth drivers within technology, and AWS reInvent provides an annual barometer for the pace of change across this trillion-dollar transformation," Keybanc Capital Markets Research Enterprise IT Team wrote in a note Monday.
The team pointed to the growth of the cloud segment of Amazon's business, which has more than doubled in revenue in the past two years.
"Recall, it took ten years for AWS revenue to climb above $10 billion, while the next incremental $10 billion took only two years (2016-2018)," the team noted. "2019 could mark the first year AWS adds an incremental $10 billion within a single year as cloud and digital transformation becomes a mainstream phenomena driving AWS revenue to $35 billion and operating profits above $10 billion for the first time."
Given the growth rate, the team projected the segment to remain a star even amid a potentially turbulent market ahead.
Competition Climbs into Frame
That said, the Jeff Bezos brainchild is not the only player in town attempting to attack the burgeoning demand for cloud related products.
In fact, due to its success in eCommerce, demand from large customers like Walmart (WMT) has expressly forbid its partners from utilizing AWS. Instead, it has opted for Microsoft's (MSFT) Azure product.
Microsoft's cloud business has steadily crept into the picture as the clear secondary challenger to AWS' cloud crown, followed after by Alphabet's (GOOGL) own cloud offering. Amazon had 40% of the cloud business at the end of 2017; Microsoft had 23% after tripling its revenue in the past two years.
Ivan Feinseth, CIO of Tigress Financial Partners, told Real Money that Microsoft should continue to nip at Amazon's tail in cloud market share in a recent interview.
"Azure has grown almost 100% per quarter," Feinseth explained. "I expect that growth trend to continue moving forward."
He added that the company's focus on hybrid solutions rather than simply the public cloud is key to its success, something that has been echoed by Jim Cramer's Action Alerts Plus portfolio team.
The portfolio holds positions in both companies based on the opportunity for both companies to grow in the under-penetrated space led by Amazon.
Still Sitting Above the Cloud Competition
Despite the insurgency of Microsoft to the still-maturing sector, Statista reports state that Amazon is not ready to abdicate its top spot in the near future. Instead, the company is projected to maintain a market share around 50% in 2020.
"Looking out three years to 2021, we estimate AWS revenue could double to an estimated $56 billion from $25 billion this year," the Keybanc team forecasted. "This would assume AWS might capture just 4% share of a trillion-dollar market leaving ample room for IaaS alternative platforms like Microsoft Azure and Google Cloud to also sustain high-growth at scale."
The team noted that the expanding margins on the cloud segment should aid the acceleration of these revenues. Operating margins charted over 30% in the third quarter of 2018, reflecting not only growth in the segment but an increased efficiency that should help stave off competitors-come-lately.
"Bottom line, AWS is likely to remain a bright spot within the broad Amazon product portfolio from both a revenue growth and profitability perspective during a cloud-first era," the Keybanc team said.
Shares of the cloud king were up about 4% in Monday morning's trading as the market picks up on both a cyber Monday sales surge and the potentially bigger business in cloud technology.