Cloud companies are going all-in on India

As India embraces rapid digitalisation, the country's public cloud services market is poised for exponential growth. 

Research firm IDC predicts that by 2026, this market will surge to a staggering $13.0 billion, expanding at a 23.1% annual growth.

Prominent US cloud giants have recognised the immense potential and are making substantial bets on the burgeoning Indian cloud market. The following global tech players positioned themselves to capitalise on India's digitalisation growth story, presenting attractive long-term investing opportunities for investors.

Amazon (AMZN), a dominant online retailer, clocked $386 billion in sales and about $578 billion in gross merchandise volume in 2021.

Retail accounts for 80% of the revenue, with Amazon Web Services contributing 10%-15% through cloud services. Advertising services contribute 5% while other sources make up the remaining revenue. International markets constitute 25%-30% of non-AWS sales, with Germany, the UK, and Japan as key contributors.

Amazon has been aggressively investing in India’s cloud market. Amazon Web Services plans to invest nearly $13 billion in cloud infrastructure in India by 2030 as part of long-term efforts to enhance the global reach of its cloud services. This is in addition to the $3.7 billion the company had invested between 2016 and 2022.

The investment is estimated to contribute $23.3 billion to India’s economy by 2030, the company said.

Amazon Web Services makes the tech behemoth a clear leader in public cloud services.

"Amazon was a pioneer in public cloud infrastructure as a service and platform as a service and retains a substantial lead over its closest rival, Microsoft," says a Morningstar report.

Amazon's profitability has been significantly boosted by the success of AWS, which generates 60%-65% of the total operating profit.

"We also expect AWS to remain a key growth driver for the company over the next decade," says Morningstar equity analyst Dan Romanoff, who puts the stock’s fair value at $137.

As parent company to Google, Alphabet (GOOG) derives 99% of its revenue from the search engine business. Google’s primarily source of revenue is online ads, while additional revenue comes from app sales, cloud services, and hardware sales. Alphabet's other business ventures include healthcare, internet access, and autonomous vehicles.

Google has been expanding its cloud infrastructure in India by building clusters of local data centres and has been making strategic investments from its $10 billion fund allocated to promote digitalisation in India over the next several years.

The wide-moat firm says India remains a long-term opportunity for Google cloud.

"We were impressed by Google Search advertising revenue growth; continuing strength in the cloud business, which is making headway toward profitability, likely next year," says a Morningstar report, adding that, while competition is growing, "Alphabet has the necessary technology and talent to successfully battle" its competitors in the cloud space.

Google’s growing cloud dominance and investments in the field have been impressive.

"We particularly applaud the efforts to gain a stronger foothold in the fast-growing public cloud market," says Morningstar equity analyst Ali Mogharabi, who pegs the stock’s fair value at $154.

Google has efficiently utilised its technological knowledge and experience in developing and managing its private cloud platform "to increase its market share in this space, driving additional revenue growth and creating more operating leverage, which we expect will continue," he adds.

Silicon Valley tech heavyweight Microsoft (MSFT) is known for its Windows operating systems and Office productivity suite. The firm operates three segments: productivity and business processes, intelligence cloud, and more personal computing. The productivity and business processes segment includes Office 365, SharePoint, Skype, and LinkedIn. The intelligence cloud segment offers Azure cloud platform and Windows Server OS.

The company became the first global cloud provider to offer services from local datacenters in India in 2015. Microsoft has recently announced it plans to set up a new $2 billion datacentre in Hyderabad, in addition to its multiple Microsoft datacentres already in India.

Under the leadership of chief executive Satya Nadella, Microsoft has transformed into a dominant force in the cloud industry. It is now recognised as one of the top two public cloud providers capable of delivering a comprehensive range of cloud solutions.

The wide moat firm’s Q3 report shows a 7% increase in quarterly revenue, and 16% growth in intelligent cloud from a year ago.

"Azure is the centerpiece of the new Microsoft," says Romanoff, adding that, despite being an approximately $45 billion business, "it grew at a staggering 45% rate in fiscal 2022."

As customers continue transitioning from on-premises to cloud solutions, the firm’s revenue growth will remain robust for the next several years, says Romanoff, who puts the stock’s fair value at $325.