The last three years have seen a sharp surge in digitalisation by individuals and companies.
With the proliferation of smartphones and laptops, along with better connectivity with the advent of 4G and 5G networks, staying connected on the go is now the norm.
As investors, it is important to identify a growing, sustainable trend that you can base your investment ideas on.
Interest in generative artificial intelligence (AI) means that the industry should see significant future growth.
Gartner, an independent research firm, estimated that worldwide spending on cloud services grew 20.4% year on year to US$494.7 billion in 2020, with spending set to hit US$600 billion this year.
We feature four promising and fast-growing cloud firms that could end up on your buy watchlist.
Microsoft (NASDAQ: MSFT)
Microsoft is a vendor of computer hardware, software, and gaming systems.
The company is also a leading cloud service provider and is famous for its Office 360 suite of word processing and spreadsheet software that is used by millions of people and corporations.
Microsoft reported a mixed set of results for its fiscal 2023 (FY2023) ending 30 June 2023.
Revenue rose 6.9% year on year to US$211.9 billion while operating profit increased by 6.2% year on year to US$88.5 billion.
Net profit, however, slid by 0.5% year on year to US$72.4 billion because of higher income tax provisions.
Despite the lower profit, Microsoft reported a 21% year-on-year jump in cloud revenue, demonstrating continued demand for its cloud services.
For FY2023, the software company also generated US$59.5 billion of free cash flow.
This momentum has continued into the first quarter of fiscal 2024 (1Q FY2024).
Revenue increased by 12.8% year on year to US$56.5 billion with operating profit climbing 25% year on year to US$26.9 billion.
Net profit improved by 27% year on year to US$22.3 billion.
Microsoft cloud revenue for the quarter increased by 24% year on year.
The gross margin for the division also increased slightly year-on-year from 72% to 73%.
Alphabet (NASDAQ: GOOGL)
Alphabet is a technology holding company and the parent company of search engine Google.
The Californian company also offers cloud services (Google Cloud) and owns video-sharing site YouTube.
For its 2023 third quarter (3Q 2023) result, Alphabet saw revenue rise 11% year on year to US$76.7 billion.
Operating profit jumped 24.6% year on year to US$21.3 billion while net profit surged 41.5% year on year to US$19.7 billion.
Google Cloud performed well for the quarter, notching up a 22.5% year-on-year revenue increase to US$8.4 billion.
The division also chalked up an operating profit of US$266 million, its second consecutive quarter of profitability after 2Q 2023’s operating profit of US$395 million.
Alphabet is also a very strong free cash flow generator.
For the first nine months of 2023 (9M 2023), the technology company generated US$61.6 billion of free cash flow, up 40% year on year from US$44 billion in 9M 2022.
Oracle (NYSE: ORCL)
Oracle develops and markets computer software applications for businesses and provides cloud services for its clients.
For its fiscal 2023 ending 31 May 2023, total revenue rose 18% year on year to US$50 billion, an all-time high.
Operating profit climbed 20% year on year to US$13.1 billion.
Net profit surged 27% year on year to US$8.5 billion.
The cloud company also generated a healthy positive free cash flow of US$8.5 billion for FY2023.
For its first quarter of fiscal 2024 (1Q FY2024) ending 31 August 2023, revenue increased 9% year on year to US$12.5 billion with cloud revenue shooting up 30% year on year to US$4.6 billion.
Operating profit climbed 26% year on year for the quarter to US$3.3 billion while net profit leapt 56% year on year to US$2.4 billion.
Amazon (NASDAQ: AMZN)
Amazon is one of the largest e-commerce players in the world and operates cloud services under Amazon Web Services (AWS).
The company reported an encouraging set of results for the first nine months of 2023 (9M 2023).
Total sales rose 11% year on year to US$404.8 billion with operating profit more than doubling year on year to US$23.6 billion.
Amazon reported a net profit of US$19.8 billion for 9M 2023, reversing last year’s US$3 billion net loss.
Its AWS segment reported higher net sales of US$66.6 billion, up from US$58.7 billion a year ago.
However, operating income for the division dipped slightly from US$17.6 billion to US$17.4 billion for 9M 2023.
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Disclosure: Royston Yang owns shares of Alphabet.
