Why You Should Remain Long Google, Amazon And Microsoft Amid Business Flows Into Public Cloud

Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) and its Google unit are aggressively pushing into the cloud, and investors should view this as a bullish sign for the stock.

Deutsche Bank's Ross Sandler commented in a research note on Thursday that his recent channel checks show Google as not only "getting more aggressive" in the cloud space but "gaining traction" under the leadership of Diane Greene.

Google has been heavily investing in its Google Cloud Platform (GCP) and has committed to over $1 billion in acquisitions in the past year, including its recent acquisition of Apigee. As such, the narrative around GCP being a "distant third place" among major cloud providers "may start to improve" moving forward.

Standing in Google's way of dominating the cloud space is the much larger Amazon.com, Inc. (NASDAQ: AMZN), which operates cloud-computing service AWS, and Microsoft Corporation (NASDAQ: MSFT) — its Azure product is a similar cloud-computing platform.

The Battle Begins

Sandler further stated in his research report that his channel checks suggest Google is actively targeting "marquee" Silicon Valley customer prospects, many of whom currently use Amazon's AWS service. Google is also aggressively hiring sales reps who will place an emphasis on winning contracts based on its own products and infrastructure and not on price.

In addition, the analyst is "also hearing" that GCP will make some "material product announcements" later this month.

As such, Sandler stated that his prior $400 million revenue run-rate estimate for GCP in 2016 is too low and a better estimate could be closer to $750 million.

"On its 2Q16 call, Google called out Cloud as the primary driver of the re-accelerating growth for Licensing and Other revenue, the first time the business has been called out in pole position," the analyst wrote.

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Market Is Big Enough For All

Sandler acknowledged that GCP is only a "small but growing" part of Google's business but it is also a segment with "potential upside surprise."

Morever, the cloud space has "ample room" for Google, Amazon and Microsoft to succeed in, so investors should remain long on all three names ahead of the "tidal wave of business flowing to the public cloud.

Shares of Alphabet are Buy rated with a $1,050 price target.

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