Cloud computing has become one of the fastest growing and most lucrative industries in recent years. The COVID-19 pandemic dramatically accelerated market growth as more companies sought to move their operations to the cloud, adopting digital services that enabled work from anywhere. According to Grand View Research, the industry was worth $369 billion in 2021 and will have a compound annual growth rate of 15.7% through 2030.
As a result, dozens of companies have begun carving out a niche in cloud computing, and some are already enjoying increased revenues. In fact, macroeconomic headwinds have caused many tech companies to post losses in 2022. However, cloud computing has remained largely unchanged as the industry has continued to deliver impressive revenue growth.
Here are two cloud computing stocks to buy first-hand in 2023.
From the third quarter of 2022. Microsoft‘s (MSFT 0.76%) Cloud computing service Azure had a 21% industry market share, just behind Amazon Web services 34%. The company has made significant progress in the industry in recent years and plans to further increase its market share.
In November 2022, Microsoft CEO Satya Nadella revealed plans to expand Azure by building more data centers in at least 11 new regions, with the company “very bullish” on Asia as a growth market. Just a few days ago, on January 9, news broke that Microsoft had acquired data processing unit maker Fungible for about $190 million, which will further strengthen Azure.
Microsoft’s motivation to aggressively develop its cloud computing platform is no doubt partly due to the returns it has already seen from its intelligent cloud segment. In the first quarter of fiscal 2023, which ends Sept. 30, revenue rose 11% year over year to $50.1 billion and operating income rose 6% to $21.5 billion despite the PC-focused segment reported operating losses of 15%. Growth was primarily driven by Azure, with Microsoft’s cloud computing segment enjoying 20% year-over-year revenue growth to $20.3 billion and a 17% increase in operating income to $8.9 billion.
As one of the biggest players in cloud computing and with concrete plans to increase its market share, Microsoft is a smart way to invest in the lucrative industry in 2023.
As the leader in graphics processing units (GPUs) with a 72% market share in the discrete segment, Nvidia (NVDA 1.80%) represents a unique opportunity to invest in the hardware side of cloud computing. The company’s GPUs are used in data centers around the world, powering the cloud. As the cloud computing market continues to expand, data centers and GPUs are a key part of that growth, and Nvidia is positioned to profit in the long term.
In November, Nvidia announced a promising partnership with Microsoft’s Azure to build a massive artificial intelligence (AI) cloud computing where its GPUs will be combined with a cloud platform. The multi-year collaboration will provide a “fast, cost-effective” path to the development and deployment of artificial intelligence, according to Nvidia.
The alliance with one of the biggest names in cloud computing is extremely encouraging for Nvidia’s future in the industry, as Microsoft’s plan to build more data centers could lead to further collaboration.
Moreover, Nvidia’s data center business has quickly become the most impressive part of its business, earning the largest amount of revenue in the most recent quarter. The company is seeing significant gains from the growing cloud computing market, with data center revenue rising 30.5% year-over-year to $3.8 billion in the third quarter of fiscal 2023. The strong growth suggests Nvidia is nowhere near reaching its potential in data centers.
Nvidia endured a challenging 2022, with its shares down 51%. However, its data center business continued to thrive even as its gaming segment faced economic headwinds. The company’s stake in cloud computing is likely to continue to boost profits over the long term, and once the economic woes subside, bringing back consumer demand in the gaming segment, Nvidia will be unstoppable.
Buying Nvidia stock in 2023 could be an investment in the future cloud computing leader.