The cloud computing war between Amazon, Microsoft and Google is shifting into a new gear as the three tech titans try to stay on top in a fast-changing market. The battle is moving from providing computing hardware resources to software development, putting market share in play among the three giant cloud stocks.
In the race to develop software tailored for the cloud, a new “container” technology has emerged among these cloud computer stocks. It’s a bit technical, but the way it works is containers package building blocks of code and support functions in a way that makes applications easier to develop, deploy commercially and scale up based on demand.
Containers also enable customers to utilize cloud computing resources in new ways, reducing their need to manage servers and data storage.
For investors, the bottom line is that the container-centric cloud should keep revenue growing at torrid pace.
The big cloud computing stocks — Amazon.com (AMZN), Microsoft (MSFT) and Google’s parent Alphabet (GOOGL) — see the container movement taking off. In interviews with Investor’s Business Daily, cloud executives at Amazon Web Services, Microsoft’s Azure unit and Google described new business models that could emerge.
Containers will help all companies morph into tech companies that develop software to get a competitive edge, they say.
Cloud Stocks: Fueling Revenue Growth For Amazon, Microsoft, Google
“Every company wants to move more quickly, that’s why they want to become tech companies,” Deepak Singh, AWS’s vice president of computing services, told IBD. “They may have to take existing on-premise applications and move them to the cloud. Or they may have customer-facing applications in the cloud that need to go mobile or take advantage of artificial intelligence. Containers are very portable and make it easier to move applications anywhere in the cloud.”
The size of the cloud, moneywise, is already formidable. Amazon, Microsoft and Google stock combined raked in some $83 billion in cloud computing revenue in 2020.
The three cloud computing stocks garnered nearly $43 billion of that from public infrastructure-as-a-service, or IaaS, up some 40% from a year earlier, research firm Gartner said in a June report. In the IaaS market, businesses rent servers and data storage. The cloud giants offer business customers processing power and data storage by the hour, week, month or year.
Amazon stock held 41% of the IaaS market in 2020, said Gartner. Microsoft had 20% and Google 6%.
The shift to container technology, meanwhile, is well under way. Some 53% of “enterprises,” or large companies, are using containers in some form, with just 5% having no plans to implement, according to 451 Research, part of S&P Global Market Intelligence.
Cloud Computing Stocks Used Containers In Pandemic
During the Covid pandemic, as demand for cloud-based services jumped, container technology worked in the background for companies like DoorDash (DASH) and Instacart to handle more online food delivery orders.
Over time, infrastructure-as-a-service could fade away.
With traditional IaaS, cloud customers still must decide on the size of their server farms and over what period they need them. And they must manage their apps using a dashboard that automates server provisioning and scaling.
But as container adoption grows, the IaaS business model could evolve into a new framework. Under a “server-less” business model that is in early stages of deployment, customers no longer manage their own cloud infrastructure.
The cloud companies instead ramp up processing power as needed to execute software programs. The cloud titans say that frees up customers to focus on application development.
Cloud Stocks Race To Build The Best Platform
AWS, Microsoft Azure and Google are jockeying to provide “Kubernetes”-based management platforms that let customers build, deploy and scale containerized applications. Google originally developed Kubernetes, which manages clusters of containers, but made it publicly accessible in 2015.
Google customers such as Pizza Hut (YUM) and the New York state unemployment system were able to respond to surging demand during coronavirus lockdowns as its Kubernetes platform kicked in, said Eyal Manor, general manager and vice president of engineering at Google.
“Containers enable customers to consume the cloud in a very efficient, pay-as-you-go way,” Manor said. “If there is more web traffic, our customers love the ability to scale up and down. And, they’re a way to accelerate software development and production.”
Google Stock, Amazon Stock And GPU ‘Accelerators’
Container technology and server-less computing also are expected to boost demand for powerful graphic processing units. These GPUs work as accelerators in the cloud.
A lift for Google stock and Amazon stock may come in the form of home-grown GPU accelerators. Chipmaker Nvidia (NVDA) also is expected to get a boost. Nvidia stock has jumped 54% in 2021.
“Containers offer new kinds of interesting business models for the cloud,” said Ian Buck, vice president and general manager of accelerated computing at Nvidia. “What we’re seeing now is a shift from infrastructure-as-a-service to the next level up — managed Kubernetes.”
“Customers don’t need to rent a particular server, which may be overkill. Instead, they could do it server-less and just run managed Kubernetes containers somewhere for their service. It could be a database, a web server, or an artificial intelligence agent for doing recommendations or search,” Buck said in an interview.
He added: “Again, it’s a different economic model. For someone like Amazon, you could see how they could optimize their cloud infrastructure with containers while the customer only pays just for what they use.”
Microsoft Stock: Azure Chips Away At AWS Market Share
Analysts say many companies are recognizing the advantages of using multiple cloud computing providers. That gives them flexibility in moving business workloads to the cloud and better pricing bargaining power.
At the same time, companies in many industries, such as financial services, prefer a hybrid cloud model. There, they utilize both their own on-premise data centers and remote cloud services.
Microsoft’s Azure service has gained momentum in hybrid cloud services. That’s due to its large installed customer base and the growth of Office 365.
Container platforms play a role in both multi-cloud and hybrid cloud trends. The reason is that containers make it possible to write software code once and run it anywhere. The code could be run on-premise or in multiple public clouds.
“Containers are becoming a battleground,” said Owen Rogers, analyst at 451 Research. “A few years ago cloud providers would generally focus on only offering services in their own data centers. Slowly but surely they started realizing that they should offer their own services but hosted in a company’s data centers.”
Cloud Stocks: Enterprises Adopt Containers
“Containers have been the way that these hyperscale cloud providers can reach beyond the walls of their data centers. Increasingly containers are a way for them to make things more portable,” Rogers said.
Amazon’s container platform last year helped it win Twitter (TWTR) as a new customer. Other customers include Snap (SNAP), Expedia (EXP) and Vanguard. Snap stock has gained 36% in 2021.
Microsoft points to companies such as Mercedes-Benz (DMLRY) and Bosch as container adopters. Google says Bayer’s (BAYRY) Crop Science unit and Ikea are among customers that utilize containers.
Companies using container technology include Liberty Mutual, Target (TGT), Visa (V) and Walmart (WMT) as well as born-in-the cloud companies such as Lyft (LYFT) and Spotify (SPOT), said a Forrester report. Lyft stock has gained 27% in 2021.
One growing view is that companies across many industries are morphing into technology companies. For most, that means digital transformations that involve hiring software engineers to write code.
“Enterprises in financial services, retail, media have all adopted containers to modernize and take applications that are running on-premise and converting them to the cloud,” said AWS’s Singh. “Containers are very portable. It makes it easier for them to get all the benefits of the cloud.”
Google Stock: Containers Speed Software Development
Containers help companies speed up software development, notes Google’s Manor.
He says they also make it easier for customers to try new programs, such as Google’s databases and artificial intelligence tools.
“Any company now wants to become a modern software company, but it’s complicated,” Manor said. “Server-less provides the opportunity to automate the process in an efficient way while reducing cost.”
“At the end of the day, you want to give software developers time to what they do best: that’s writing new code, new business logic and not spend too much time on maintenance,” Manor went on to say. “There is a big opportunity as an industry to accelerate software development, making it easier for customers and empowering developers.”
Will Server-Less Model Slow Revenue?
If large companies shift to server-less computing, one question arises. How would that impact revenue growth of Amazon, Microsoft and Google?
In the case of Microsoft, Gabe Monroy, vice president of Microsoft’s Azure Developer experience, says the change should not impact revenue growth.
With server-less computing, cloud service providers charge for the computing resources required to execute software code or apps.
“Our customers are constantly looking to be more efficient in their adoption of cloud,” he told IBD. “At the same time what we find is that as they become more efficient and derive more business value, they wind up using more cloud services on the other side. So I’m expecting growth to continue unabated despite our increasing focus on helping customers do more with less in the cloud, server-less being an example of that.”
Container platforms run on Linux-based, not Microsoft servers. But that’s not an issue for Microsoft, says Monroy.
“Microsoft is extremely focused on meeting our customers where they are,” he said. “And increasingly customers are deploying Linux and open-source workloads that include technology like containers. AKS (Azure Kubernetes Service) is in fact the fastest-growing service in the history of Azure.”
MSFT Stock Playing Catch-Up
Microsoft analyst Daniel Ives of Wedbush said in an email that the software giant is playing catch-up.
“On the container front, AWS and Google have an edge on Microsoft in the cloud race, which appears to be becoming more relevant in some deals,” he said. “This is a fly in the ointment Redmond is well aware of and addressing with cloud customers.”
The Azure cloud business helped Microsoft first-quarter earnings top expectations. Amazon, Google and Microsoft have all upped spending on internet data centers.
At the same time, the cloud computing battleground is shifting to edge computing as applications move from data centers to servers located where local networks meet the internet. In edge computing, cloud infrastructure services such as computers, storage and networking are placed close to where data originates. That could be a factory, hospital, transportation hub or retail store.
Container technology can make edge computing easier to deploy.
“On the network edge, containers make it easier to run lightweight applications with limited resources,” AWS’s Singh said. “You can’t have fat applications on the edge.”
Cloud Computing Stocks And Virtual Machines
Who’s leading in container software — Amazon , Microsoft or Google — is part of a bigger battle.
“We are seeing a concerted focus by cloud platforms to fortify their competitive advantage in segments where they have a significant ecosystem of solutions,” Mizuho Securities analyst James Lee said in a note to clients. “AWS is becoming more dominant in database management, Google is becoming more robust in artificial intelligence and Microsoft is becoming more important in cybersecurity.”
Amazon, Google and Microsoft aren’t the only cloud stocks with a stake in the container movement. Others include IBM (IBM), with its Red Hat acquisition, VMware (VMW), Oracle (ORCL), cybersecurity firms as well as a wave of software development specialists.
Other cloud computing stocks include software companies Datadog (DDOG), Dynatrace (DT) and Cisco Systems’ (CSCO) AppDynamics. They help companies monitor containerized applications in the cloud.
Security For Containers
Privately held Sysdig, Aqua Security and Tenable Holdings (TENB) provide security for containers. Palo Alto Networks (PANW) acquired container specialist Twistlock in 2019.
Meanwhile, containers will steadily displace an earlier server technology called “virtual machines,” analysts say. Containers have less overhead, such as memory needs, and improve security. Thus, they are faster than virtual machines.
That poses a challenge for companies such as VMware, whose software is widely used in corporate data centers. Dell Technologies (DELL) plans to spin off VMware in the September quarter.
Also, VMware aims to be a bigger player in containers and public cloud with its “Project Tanzu,” a Kubernetes management platform. VMware also has a cloud alliance with AWS.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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