AMZN: 3 Cloud Computing Stocks Reporting Earnings This Week

The final week of October will see more than one third of S&P 500 index components reporting quarterly financials. The upcoming reports are especially important as they will reflect how the companies have adjusted their business models to operate in the “new-normal.”

The cloud computing industry has been dominating the market since the onset of the pandemic. This is evident from the First Trust Cloud Computing ETF’s (SKYY) 32.2% year-to-date gain, compared to the S&P 500’s 5.3% return over the same period. While changing consumer and business behavior — such as remote working — have significantly favored the industry, the cloud players have further modified and expanded their offerings to meet the emerging customer needs.

The upcoming quarterly results for Amazon.com, Inc. (AMZN), Microsoft Corporation (MSFT), and Alphabet Inc. (GOOG) will reflect how they benefited from their efforts to help businesses and individuals stay functional amid the pandemic, and what could help them keep growing in the future.

Amazon.com, Inc. (AMZN)

AMZN is the world’s largest online retailer. Although the company earns revenues through subscriptions from Amazon Music and Prime Video, Amazon Web Service (AWS) has been dominating the cloud computing industry. With a pandemic-ready business model, the stock gained nearly 90% since hitting its 52-week low in mid-March.

AMZN is scheduled to report its third quarter financial results on October 29^th. AWS’ net sales increased 29% year-over-year to $10.8 billion for the second quarter that ended June 2020. With the increasing market demand in the cloud computing industry, AWS is expected to grow even more. Analysts expect AMZN’s revenue to increase 32.2% for the third quarter that ended September 2020 and 27.4% in the next quarter. AMZN’s EPS is expected to grow 71.4% for the about-to-be-reported quarter, 39.7% next year, and at a rate of 36% per annum over the next five years.

Carrier Global Corporation (CARR) had selected AWS as its preferred cloud services provider in February 2020, and earlier this month, they announced a multi-year agreement to co-develop Carrier’s new Lynx digital platform. Last month, AWS also announced the general availability of Amazon Timestream, which will help improve the database for Internet of Things (IoT) and operational applications. Earlier this month, the company announced its plans to open two new fulfillment centers in Kansas, and its first fulfillment center in Waco, Texas.

How does AMZN stack up for the POWR Ratings?

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A for Trade Grade

B for Buy & Hold Grade

B for Peer Grade

A for Industry Rank

B for Overall POWR Rating

The stock is also ranked #5 out of 58 stocks in the Internet industry.

Microsoft Corporation (MSFT)

MSFT’s segments broadly include Productivity and Business Processes, Intelligent Cloud and More Personal Computing. Its cloud computing arm, Microsoft Azure, is one of the dominating platforms in the industry with AMZN’s AWS being five times more expensive than Azure for Windows Server and SQL Server.

MSFT is scheduled to report its fiscal first quarter earnings today after the market is closed. For the fourth quarter that ended June 2020, MSFT’s server products and cloud revenue increased 19% year-over-year, driven by a 47% year-over-year increase in revenue from Azure. Analysts expect MSFT’s revenue to increase 8.1% for the first quarter that ended September 2020 and 9.5% in the next quarter. MSFT’s EPS is expected to grow 11.6% for the quarter to be reported, 13.6% next year, and at a rate of 15% per annum over the next five years.

Earlier this month, MSFT teamed up with Verizon (VZ) to offer private 5G mobile edge computing. On October 22^nd, Honeywell (HON) announced that leveraging Microsoft Azure, their partnership will drive new levels of productivity for industrial clients. Then as recent as yesterday, partnering with C3.ai and Adobe, MSFT launched C3 AI CRM powered by Microsoft Dynamics 365. The company also announced its plans to establish its first cloud data center region in Taiwan, as part of the “Reimagine Taiwan” initiative. MSFT has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters. The stock has gained 33.2% year-to-date.

MSFT’s POWR Ratings reflect this promising outlook. It has an overall rating of “Buy” with an “A” for Trade Grade and Industry Rank, and a “B” for Buy & Hold Grade and Peer Grade. Among the 96 stocks in the Software – Application industry, it’s ranked #13.

Alphabet Inc. (GOOG)

GOOG has been making headlines following the antitrust suit filed by the Department of Justice alleging GOOG to be a “monopoly gatekeeper” in its search engine business. This, however, has failed to mar investor enthusiasm in the stock. The stock gained 50.5% since hitting its 52-week low in March.

GOOG is scheduled to release its third quarter financial results on October 29^th. Google cloud, which is already available in over 200 countries and territories, is expanding in Poland, Canada, India, and France, to name a few. Analysts expect GOOG’s revenue to increase 5.5% for the third quarter that ended September 2020, 10% in the next quarter, and 20.7% next year. The company’s EPS is expected to increase 9.6% for the about to be reported quarter, 27.6% next year, and at a rate of 4.8% per annum over the next five years.

Last week, Google Cloud announced that it secured a Framework Agreement for Secure Cloud from the Canadian federal government helping them digitally transform and better serve their communities and constituents. Google cloud also entered a five-year agreement with the U.S. Department of Energy (DOE) on October 15^th to help DOE scale research efforts. Nokia and Google Cloud also entered into a five-year strategic collaboration whereby Google Cloud’s infrastructure-as-a-service platform will accelerate cost optimization, efficiency, and operational reliability for Nokia (NOK).

It’s no surprise that GOOG is rated “Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Peer Grade, and Industry Rank, and a “B” for Buy & Hold Grade. In the 58-stock Internet industry, it is ranked #6.

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AMZN shares were trading at $3,234.95 per share on Tuesday morning, up $27.91 (+0.87%). Year-to-date, AMZN has gained 75.07%, versus a 6.90% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...