uploads///Amazon AWS revenue growth

Cloud Plays Important Role in Driving Large-Cap Tech Sector

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Oct. 26 2015, Published 8:23 a.m. ET

Amazon stock gained from AWS’s stupendous performance

In the previous part of this series, we discussed the extent to which various large-cap stocks such as Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT), and Apple (AAPL) gained on Friday, October 23. One common factor driving stock price gains for Amazon and Microsoft has been the performance of their cloud segments. Amazon and Microsoft’s stocks gained 6.2% and 10.4%, respectively, on Friday after their 3Q15 earnings results.

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Amazon’s cloud computing arm, Amazon Web Services (or AWS), surprised investors with its contribution to the company’s overall revenue. AWS reported revenue of $2.1 billion in 3Q15. The revenue growth for AWS in 3Q15 and 2Q15 was an impressive 78% and it was 82% on a year-over-year basis, as the chart below shows. AWS’s operating income for 3Q15 amounts to $521 million, which almost equals Amazon’s operating income for its entire North American e-commerce business, worth $528 million.

Microsoft’s cloud-arm Azure reported more than 100% growth

Microsoft, on the other hand, benefited immensely from the growth of its cloud business. Microsoft primarily generates its cloud revenues from Office 365, Dynamics CRM, and Azure—its cloud computing platform. During the announcement of Microsoft’s fiscal 1Q16 earnings, management stated that the Office 365 subscriber base grew by approximately 70% on a year-over-year basis. Azure continued to see increased adoption and reported growth of 135% in constant currency terms for fiscal 1Q16.

For diversified exposure to Microsoft, you can consider the PowerShares QQQ Trust, Series 1 ETF (QQQ), which invests 7.4% of its holdings in Microsoft.

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