Industry Growth & Acquisitions a Windfall for U.S. Cloud Comp…

Cloud Services Industry to Be 3× Bigger than IT Services

Cloud computing stocks continue to provide tech investors with some of the best opportunities for long-term, sustained growth. The industry’s numbers back this up, as do the number of blockbuster acquisitions and partnerships that are related to cloud technology.

When it comes to technology trends, cloud computing will continue to be one of the best spots for investors who are looking to generate big profits.

For starters, more and more businesses are migrating to the cloud. It is estimated that 83% of businesses will be on the cloud by the end of 2020. (Source: “The latest cloud computing trends shaping the job market,” Seen by Indeed, January 21, 2020.)

That kind of adoption rate proves that the cloud is having a massive impact on virtually every sector and industry on the planet. And it’s just getting started.

In 2019, the worldwide public cloud services market was projected to expand by more than 17% year-over-year to $214.3 billion. By 2022, it is expected to soar to $331.2 billion. (Source: “Gartner Forecasts Worldwide Public Cloud Revenue to Grow 17.5 Percent in 2019,” Gartner, Inc., April 2, 2019.)

That’s a big number. In fact, that would make the cloud services industry three times larger than overall IT services.

Fastest-Growing Cloud Computing Stocks

Some cloud computing segments are expected to grow faster than others.

Cloud system infrastructure, also known as infrastructure as a service (IaaS), was projected to advance 27.5% year-over-year in 2019 to $38.9 billion. Between 2018 and 2022, it was forecast to rise 151% to $76.6 billion. That represents a compound annual growth rate (CAGR) of 20.2%.

In second place (in terms of growth) is cloud application infrastructure services, also known as platform as a service (PaaS). It was projected to advance 21.8 % year-over-year in 2019 to $19.0 billion. Between 2018 and 2022, PaaS revenue was forecast to grow approximately 104% to $31.8 billion, for a CAGR of 15.3%.

The third fastest growing cloud tech segment is cloud management and security services. It was projected to advance 16.2% year-over-year in 2019 to $12.2 billion. Between 2018 and 2022, revenue in this segment  was forecast to climb 70.4% to $17.9 billion, for a CAGR of 11.3%.

Cloud Computing Acquisitions Heating Up

Standing still won’t make you No. 1. This is why so many big tech stocks have been upping their cloud computing game through acquisitions and partnerships.

Back in July 2019, IBM (NYSE:IBM) acquired Red Hat, Inc. for a whopping $34.0 billion. With this acquisition, IBM furthered its desire to make its products available to any private and public cloud. (Source: “IBM Closes Landmark Acquisition of Red Hat for $34 Billion; Defines Open, Hybrid Cloud Future,” Red Hat, Inc., July 9, 2019.)

In November 2019, Microsoft Corporation (NASDAQ:MSFT) and AT&T Inc. (NYSE:T) beefed up their partnership, announcing that AT&T’s 5G network will run on “Microsoft Azure” services. (Source: “AT&T Seals Major Cloud Deals With IBM and Microsoft as Edge, AI and 5G Key,” Cloud Tech News, July 17, 2019.)

IBM also announced a similar agreement with AT&T, with the latter using IBM’s cloud and RedHat platform.

In August 2019, Salesforce.com, Inc. (NYSE:CRM), completed its $15.7 billion acquisition of Tableau Software. This deal brought together the world’s No. 1 customer relationship management (CRM) platform (Salesforce) and the No. 1 analytics platform (Tableau).

Those are just three of more than 40 cloud-related acquisitions that took place in 2019, and 2020 is shaping up to be just as busy.

In early February, Hewlett Packard Enterprise Co (NYSE:HPE) acquired edge-to-cloud security startup Scytale Inc. This acquisition comes on the tail of Hewlett Packard’s purchases of Cape Networks, Plexxi Inc., and Cray Inc., all of which help the tech giant stay competitive in the cloud computing industry. (Source: “HPE Acquires Scytale to Advance Open, Secure, Edge to Cloud Strategy,” HPE, February 3, 2020.)

Analyst Take

Cloud computing isn’t just an option anymore; it’s a must. More and more companies have been moving their software applications and data to the cloud.

And spending on cloud technology is only going up.

From 2019 to 2023, expenditures on public cloud computing are expected to double to around $500.0 billion. More than half of that spending is forecast to come from the United States. (Source: “Worldwide Public Cloud Services Spending Will More Than Double by 2023, According to IDC,” IDC, July 3, 2019.)

This trend should continue to be a windfall for a large number of U.S. cloud computing stocks.