Why Microsoft is ‘Sending Shivers Down Amazon’s Spine’

Amazon has a history of falling cash on businesses, like its $13.7 billion cash acquisition of Whole Foods in 2017. But when it declared in its earnings report that it intended to increase investments in 2019, the shares of the company fell 5 percent falling into bear territory. However, Amazon might want to continue to buy up smaller companies, said Daniel Ives, managing director of equity research at Wedbush Securities — especially if it wants to stay informed about cross-town rival Microsoft, which is quickly advancing from the “cloud” arms race. 

“Amazon’s biggest nightmare is what’s happening on the other side of town in Seattle and Redmond, Washington,” said Ives. “Microsoft is actually starting to find a strut in their measure with cloud and that is sending shivers down the spine of Amazon. When you have a look at what Microsoft is doing about the side, they are going after Amazon.” Amazon reported $7.4 billion in cloud revenue last year, marking a 45 percent increase from precisely the same period the preceding year. From two quarters earlier, it’s still down from 49 percent. 

“It’s a cloud arms race going on. That gap is narrowing, although Amazon has been miles ahead of their competition. We believe this will lead to mergers and acquisitions this year,” said Ives. Microsoft doesn’t break out its cloud revenue for investors,” but said it was up 76 percent in its own second-quarter earnings for 2019, which Chief Executive Officer Satya Nadella said was a reflection of “our deep and growing partnerships with major companies in every business.” 

In Microsoft’s earnings call on Wednesday, Amy Hood, the organization’s chief financial officer, said the company is picking up more large contracts from Microsoft Azure customers, including a last-minute deal with Gap. Microsoft is a huge competitor to Amazon and is expected to close some of the gaps. However, Amazon is still despite the slight deceleration, in a dominant location, based on Patrick Moorhead. 

“AWS delivers more profit dollars to the company than all its retailing and products combined. It’s natural for the percentage growth to slow just a little bit for a business becomes large,” said Moorhead. “Investors needs to recognize that the 45 percent profit is on a huge base of business. AWS’s real-dollar expansion was larger than Azure, GCP, and Oracle combined.” 

There’s still a massive opportunity to reach new customers who have not migrated to the cloud, and so the upcoming few years will be pivotal as the technology giants lean on developing their services earnings. The cloud services market is predicted to be worth $555 billion from annually, according to a report by Allied Market Research.