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Cloud Investments Increase Amid Coronavirus: Stocks in Focus

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The cloud computing space is benefiting from widespread digital transformation. As people are working remotely and maintaining stringent social distancing measures, cloud businesses have been gaining popularity.

In the current scenario, wherein the coronavirus pandemic is turning from bad to worse, people have to maintain social distancing and work remotely. Therefore, most of the companies need to move bulk of their workloads to the cloud. On top of that, consumers have started to shop online due to coronavirus-induced lockdown. Thus, any consumer-oriented business needs to have a digital presence in order to survive.

Resultantly, cloud computing is emerging as a key technology to fight the battle against coronavirus. This technology is seeing higher usage globally as it allows data interoperability in a scalable, cost-efficient way by data collection, processing, analyzing and sharing across platforms.

Notably, Alibaba Group (BABA - Free Report) has been making great efforts to expand cloud presence beyond its China stronghold.

Alibaba’s Cloud Momentum Continues

Recently, Alibaba partnered with Equinix (EQIX - Free Report) in a bid to expand its cloud services to new markets.

In its latest step toward international expansion, Alibaba Cloud — the cloud computing arm of Alibaba Group — has partnered with data center and interconnection provider Equinix to offer its cloud services in 17 additional metros worldwide including Europe, America and Asia Pacific.

The deal will enable Alibaba to benefit from Platform Equinix’s robust interconnected ecosystem that consists of more than 9,700 customers.

Therefore, the deal will give Alibaba access to Equinix’s huge existing business customer base that consists of enterprises, network operators, cloud and IT service providers. It will now enable enterprises to connect more easily and privately to Alibaba Cloud.

The move will give Alibaba a competitive edge against rivals and further expand market share in the growing cloud market. We expect international expansion to back the momentum going forward.

Alibaba Poised for Growth

Alibaba’s cloud computing revenues have been surging over the past few years. Cloud computing has now become one of Alibaba’s fastest-growing initiatives beyond the traditional e-commerce sphere.

In April, the company announced that it will invest 200 billion yuan ($28 billion) in cloud infrastructure over the next three years. The amount invested will be used to develop technologies related to operating systems, servers, chips and networks.

In fiscal third-quarter 2020, the company’s cloud computing business segment reported revenues of RMB10.7 billion (US$1.54 billion), up 62% from the year-ago period. The increase was driven by higher revenue contribution from both public cloud and hybrid cloud businesses.

With the help of artificial intelligence (AI)-led technologies, Alibaba’s cloud unit is providing data on coronavirus and its diagnosis. Applications developed by cloud experts and researchers from the company’s subsidiary, DAMO Academy, are expected to provide the necessary support to medical professionals across the globe in combating the virus spread.

Moreover, it has been making all efforts to provide medical workers across the world with advanced cloud-based apps to help battle the coronavirus outbreak.

These steps taken by the company highlight the growing importance of the cloud business, which is likely to boost revenues in 2020.

Given the growing position of Alibaba’s cloud business in China and aggressive international expansion strategies, we believe that cloud computing will be one of the major growth drivers in the long run.

Notably, Alibaba currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

One-Year Price Performance

Alphabet, Amazon & Baidu Cloud Initiatives

Alphabet’s (GOOGL - Free Report) Google Cloud is making every effort to further bolster presence in the cloud space. Recently, the company signed a long-term partnership with Deutsche Bank (DB), the largest bank in Germany.

Per the new alliance, Deutsche Bank will leverage Google’s cloud services to build technology-based financial products for clients and deliver enhanced cloud services. These financial products will be based on growing technologies like AI, data science and machine learning.

In April, Google announced first-quarter results, wherein the company’s cloud sales — which include Google Cloud Platform and G Suite — surged 52% to $2.77 billion from $1.83 billion a year ago.

Its G Suite collaboration and productivity tools — which include Gmail, Hangout, Calendar, Currents and Docs — have more than 6 million paying customers. Google Cloud’s annual revenue run rate is now more than $11.08 billion.

Meanwhile, Baidu (BIDU - Free Report) recently announced plans to expand investments in emerging technologies like AI, cloud computing, 5G, IoT and blockchain, among others.

The China-based e-commerce giant plans to deploy 5 million intelligent cloud servers by 2030. In addition to this, it plans to train 5 million AI specialists over the next five years.

Markedly, Amazon (AMZN - Free Report) is focused on strengthening the cloud computing division — Amazon Web Services (AWS). The e-commerce giant is leaving no stone unturned to expand AWS offerings in a bid to deliver enhanced cloud experience to customers.

In first-quarter 2020, AWS generated $10.2 billion sales, accounting for 14% of Amazon’s net sales. The company’s constant efforts toward reinforcing the cloud offerings portfolio in this data-driven world hold promise and instill investor optimism in the stock.

It is likely to sustain the dominant position in the global cloud computing space on the back of expanding clientele and services portfolio. 

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