Cloud computing giants Amazon.com (AMZN), Microsoft (MSFT) and Alphabet‘s (GOOGL) Google rank as the biggest spenders on technology along with telecom firms like AT&T (T). But what these titans actually spend on data center infrastructure for cloud computing remains a guess for Wall Street analysts and their suppliers.
Capital spending on cloud infrastructure is a key industry trend for analysts that follow semiconductor companies like Nvidia (NVDA) and Intel (INTC) as well as makers of computer servers, data storage systems and networking gear. Amazon stock, Microsoft and Google do not break out cloud infrastructure spending, however, in financial reports.
So Wall Street analysts and others estimate how much of total capital spending goes toward warehouse-sized data centers packed with hardware and software dedicated to cloud computing.
It’s believed that spending on cloud infrastructure jumped in 2020 amid the coronavirus outbreak as e-commerce boomed. Meanwhile, consumers turned to internet video and online gaming for entertainment. The corporate switch to working from home also spurred demand for cloud services.
Cloud Computing: Amazon Leads In Data Center Spending
Based on first-quarter earnings reports, 2021 is shaping up as another big year for cloud capital spending. But again, it’s still largely guesswork for analysts.
Take Amazon Web Services, the biggest provider of cloud computing services. Its March-quarter capital spending blew past estimates, jumping 78% to $12.1 billion from a year earlier.
Not all of that was cloud-related, though. Some of that went toward Amazon’s fulfillment centers, logistics and product distribution network.
Morgan Stanley analyst Katy Huberty addressed the issue in a recent note to clients.
“Estimates from (market researcher) Dell’Oro suggest that the three other major U.S. hyperscalers (Facebook (FB), Google and Microsoft) spend between 60% and 80% of total capex on (cloud computing) data centers and related infrastructure equipment, much higher than Amazon given its growing logistics and fulfillment spend,” Huberty said. “Quarterly capex trends for Amazon have become a less effective indicator of data center spend compared to the other three U.S. hyperscalers.”
Amazon Stock: Cloud Revenue Grows 30% In 2020
But for all of 2020, Amazon’s capital spending boomed 138% to more than $40.1 billion, said a Bank of America report. Google’s overall capital spending dipped 5% to $22.3 billion while Microsoft’s total capital spending rose 30% to $17.6 billion, said BofA.
The three biggest cloud computing services continue to gain share vs. rivals such as IBM (IBM) and Oracle (ORCL), analysts say. But whether they’re making significant profit — or any profit at all — based on what they spend is unclear.
AWS cloud revenue rose 30% to $45.4 billion in 2020. Microsoft’s Azure cloud business climbed 50% to $24.7 billion. Google’s cloud revenue, including Workspace office software, rose 46% to $13.1 billion. To stay on top, the cloud titans aim to make sure they can meet growing customer demand.
Their customers rent computer processing power and data storage by the hour, week or month.
Another Set Of Cloud Titans
Bank of America has its own group of cloud computing titans that includes China’s Alibaba Group (BABA), Baidu (BIDU) and Tencent Holdings (TCEHY) as well as Microsoft, Google, Facebook and Amazon stock.
It forecasts that 2021 cloud capital spending by those seven companies will rise 20% to $128.3 billion vs. 37% growth in 2020.
Dell’Oro, in a March 17 press release, forecast that “hyperscale,” cloud data center capital spending will rise 20% in 2021. However, Dell ‘Oro didn’t provide a dollar figure or list the companies involved in the forecast. Dell’Oro did not respond to an email requesting more information.
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