Market Overview

Apple's Google Cloud Decision Adds To This Perception

Apple's Google Cloud Decision Adds To This Perception

Over the past 12 months, Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) has continued to be a strong performer in the Internet of Things space. With news of a forthcoming additional boost from Apple Inc. (NASDAQ: AAPL), a few analysts have begun speculating over the tangible monetary potential this paves for Alphabet.

Evan Wilson and Tyler Parker, analysts at Pacific Crest Securities, issued a company update on Alphabet in which they highlighted circulating reports from CRN that Apple has begun shifting its cloud business from, Inc. (NASDAQ: AMZN)'s AWS to Alphabet's Google Cloud Platform (GCP).

"The deal was signed late in 2015 and apparently Apple has already significantly reduced its use of AWS, although it hasn't completely abandoned Amazon," the analysts began. "Apple has reportedly used AWS historically for iCloud. The more surprising shift is from Apple to Google, which are odd bedfellows given the two companies' mudslinging and competition in other areas."

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What It Could Mean For Google

The shift "definitely adds to the perception of Google's momentum," the analysts stated. "The (CRN) article quotes $400 million to $600 million in spending from Apple on the Google Cloud Platform, which we believe is overstated and would be a meaningful percentage of total cloud revenue spent on all vendors today.

"Either way, we believe this win helps Google Cloud Platform catch up to Amazon and Microsoft, at least in terms of perception, as a real third player in the space instead of a distant third," Pacific Crest analysts elaborated.

Instead of flooding the space, Pacific Crest sees the cloud opportunity as ample enough for all three players, Amazon, Alphabet and Microsoft. While losses would be expected throughout the process, "it would likely be good for all three in the intermediate term […] Today AVS is only on a $10 billion run-rate, which shows the share that cloud vendors have left to win. If Google continues this momentum, it will definitely be a factor in that conversation."

Ratings, Price Target And Justification

Citing the integration of the Internet into daily life, search functions (SEO) and additional tailwinds capable of further bolstering Alphabet, Pacific Crest has an Overweight rating on GOOGL (a separate rating, pt was not provided for GOOG), with an attached $910 price target.

"If Google Cloud maintains this momentum, which may become more clear at CGP Next March 23–24, we could see GOOGL's multiple expand," Wilson and Parker said. "We're buyers."


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