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Is Google’s Cloud Strategy Working?

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Jul. 25 2017, Updated 6:35 a.m. ET

Google sees itself as the cloud leader in five years

When Alphabet (GOOGL) reports its 2Q17 earnings on July 24, one of the areas investors will be focusing their attention on is the progress in the company’s cloud computing business. Though it has been subdued by Amazon.com (AMZN) and Microsoft (MSFT) in terms of market share, Alphabet’s Google is one of the notable cloud infrastructure vendors, according to Synergy Research Group.

Alphabet doesn’t break out its cloud sales, but it believes it could beat Amazon to become the world’s largest cloud infrastructure vendor in the next five years. Amazon generated $3.7 billion in revenue from its cloud division, AWS (Amazon Web Services), in 1Q17, which represented a 42.0% YoY (year-over-year) rise.

Alphabet bundles its cloud sales in a segment reported as Google Other revenues. The company reported revenues of $3.1 billion in this segment in 1Q17—up about $1.0 billion YoY.

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Google shifting tactic in cloud competition

Alphabet’s cloud business will be on the radar of many investors as it reports 2Q17 earnings, mainly due to Google’s comments about its cloud strategy. Google earlier this year suggested that it doesn’t see itself joining rivals Amazon, Microsoft, and Oracle (ORCL) in cloud computing pricing wars (QQQ) (XLK).

Instead, Google wants to compete on the basis of service quality and portray itself as the go-place for cloud services related to data analytics and artificial intelligence.

As such, investors will be watching Alphabet’s 2Q17 results for hints if this strategy is working.

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