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5 Stocks to Benefit From the "As-a-Service" Revolution

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The coronavirus-led acceleration in digital transformation among enterprises is expected to go strong this year, driven by rapid adoption of cloud computing that facilitated remote working, learning and health diagnosis as well as video conferencing during the pandemic.

Moreover, changing consumer behavior is likely to keep demand for e-commerce services as well as contactless payment and delivery high that are well supported by cloud computing.

Cloud computing’s growing popularity can be attributed to the subscriptions or pay per use business model. Cloud computing services are delivered through the “As-a-Service” route over the web instead of being provided by an enterprise within the premises. Cloud computing services help organizations cut down costs and simplify IT infrastructure that results in reduced number of servers, hard disk drives and switches.

Software-as-a-Service (SaaS), Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), Monitoring-as-a-Service (MaaS), Communication-as-a-Service (CaaS) and Database-as-a-Service (DBaaS) are some of the most popular cloud computing services. Together they form the Anything/Everything-as-a-Service (XaaS) market, which is expected to witness a CAGR of 24% and reach $344.3 billion from 2019 to 2024 by the imarc group.

Moreover, IDC expects global spending on cloud computing to surpass $1 trillion in 2024. The “As-a-Service” category is likely to account for more than 60% of global cloud revenues.

Further, Gartner forecasts cloud computing to account for 14.2% of the total global enterprise IT spending market in 2024, up from 9.1% in 2020. For 2021, global end-user spending on public cloud services is estimated to grow 18.4% in 2021 to a total of $304.9 billion.

The robust spending environment bodes well for cloud computing service providers, including The Trade Desk (TTD - Free Report) , Zscaler (ZS - Free Report) , Dropbox (DBX - Free Report) , Microsoft (MSFT - Free Report) and Amazon (AMZN - Free Report) .  Let’s dig deep to find out how these service providers are going to benefit from the accelerated level of digital transformation.

One Year Performance

 

SaaS Remains Largest Cloud Computing Market

SaaS refers to a cloud computing model through which software products are delivered over the Internet, without end users needing to install anything.

According to Gartner’s projections, SaaS will remain the largest market segment (38.6% of global spending) in terms of global public cloud services end-user spending in 2021. As businesses look for creative ways to deliver a better customer experience, SaaS providers like The Trade Desk and Zscaler are expected to benefit immensely.

The Trade Desk stock has skyrocketed 188.3% in the past year. Through its self-service, cloud-based platform, ad buyers create, manage and optimize data-driven digital advertising campaigns.

This Zacks Rank #1 (Strong Buy) company is benefiting from the momentum in programmatic ad buying. You can see the complete list of today’s Zacks #1 Rank stocks here.

Further, the emergence of digital content boosted the usage of the company’s inventory across all forms of ConnectedTV. Moreover, recovering ad demand and spending scenario are expected to drive the top line.

Meanwhile, the Zscaler stock has soared 310.1% in the past year. This cloud-based security solution provider is riding on increasing demand for cyber-security solutions owing to a slew of data breaches. Increasing demand for privileged access security on digital transformation and cloud-migration strategies is a key growth driver.

Furthermore, strong presence across verticals such as banking, insurance, healthcare, public sector, pharmaceuticals, telecommunications services and education is another key catalyst.

This Zacks Rank #2 (Buy) company’s portfolio strength boosts its competitive edge and helps add users.

Further, Dropbox is well-poised to benefit from growing demand for its team collaboration tools through which users can share files, photos, videos, songs and spreadsheets. This Zacks Rank #2 company’s strong focus on product innovation and introduction of solutions like an updated Dropbox Spaces, HelloSign, Passwords, Vault and Computer Backup are anticipated to expand its user base.

Solid demand for cloud storage, triggered by the coronavirus-led work-from-home wave, has been acting as a tailwind for this company. Further, integration with leading applications like Zoom, Slack and Atlassian will likely expand the Dropbox paying user base.

Dropbox’s shares have returned 19.8% in the past year.

PaaS & IaaS to Grow Faster Than SaaS in 2021

In cloud computing, PaaS providers offer infrastructure, servers, networking, storage, database, middleware, operating system, security, runtime environment, infrastructure monitoring and analytics solutions over the web. Meanwhile, IaaS service providers’ deliver infrastructure to customers on demand.

Per Gartner’s forecast, application infrastructure services, which it defines as PaaS, are expected to grow much faster, 26.6% over an estimated 2020 figure, compared with SaaS, in 2021. Moreover, system infrastructure services (which it defines as IaaS) are expected to grow 26.9% over the estimated 2020 figure.

The solid growth rate bodes well for Microsoft and Amazon primarily due to multi-cloud deployments. Per ZDnet, which cited a study from Flexera, 93% of the 750 respondents have a multi-cloud spending strategy.

Microsoft, through its cloud computing platform Azure, is a leading provider of PaaS and IaaS services. Azure’s increased availability in more than 60 announced regions globally, is expected to have strengthened this Zacks Rank #3 (Hold) company’s competitive position in the cloud computing market, currently dominated by Amazon’s cloud-arm Amazon Web Services (AWS).

Markedly, for second-quarter fiscal 2021, Intelligent Cloud (Azure falls under this group) revenues are anticipated between $13.55 billion and $13.8 billion. Azure's revenue growth is likely to reflect continued strength in consumption-based services. Microsoft’s shares have returned 39.9% in the past year.

Although Amazon has lost some market share due to stiff competition from Microsoft Azure and Google cloud, this Zacks Rank #3 company’s expanding clientele and growing footprint in the hybrid cloud space are noteworthy.

AWS’ portfolio strength is a major growth driver. It recently rolled out a cloud-based healthcare service called Amazon HealthLake. Further, the company unveiled Amazon DevOps Guru, which improves application availability by using ML services.

Additionally, the company rolled out five industrial ML services, namely, Amazon Monitron, Amazon Lookout for Equipment, the AWS Panorama Appliance, the AWS Panorama SDK, and Amazon Lookout for Vision. Further, AWS recently made Amazon Managed Workflows for Apache Airflow (“MWAA”) generally available.

Amazon’s shares have returned 71.2% in the past year.

Zacks Top 10 Stocks for 2021

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