DB’s Karl Keirstead and Ross Sandler heaped praise on the cloud-computing division, Amazon Web Services, in a note detailing the future of the technology.
After calling public cloud infrastructure the “most disruptive trend impacting the technology industry today,” the analysts highlighted AWS’ business and its leader, Andrew Jassy.
“Measured by revenues, AWS is approximately 6x larger than its biggest rival Microsoft Azure and is arguably the greatest disruptive force in the entire enterprise technology market today,” wrote Keirstead and Sandler.
“While Marc Benioff of Salesforce is an icon in the software industry,” they said, “Andrew Jassy of AWS keeps a relatively low profile and in our view may be the world’s most under-appreciated technology company head.”
AWS, which was started in 2006, provides an array of data-storage and processing options for businesses while reducing some of the need for on-premise servers and IT support, which the analysts likened to Uber or Airbnb.
“Airbnb and Uber made the term ‘sharing economy’ famous, but AWS applied the concept to IT resources almost 10 years ago,” the note read.
This model has made Amazon a lot of money. According to the company’s third-quarter earnings report, sales for the segment topped $US2 billion for the quarter and profits were about $US500 million.
According to Keirstead and Sandler, revenues for AWS barely topped $US750 million for the third quarter two years ago.
The explosive growth, said the analysts, has made AWS the fastest-growing enterprise tech company of all time, and it will soon be the largest part of Amazon.
“If AWS were to grow at a 40%-45% clip near term and decelerate to 30% in the out years, and Amazon’s retail business was to grow gross profits by 15% over the longer-term, AWS would indeed be larger than Amazon retail (on a gross profit basis) in the year 2024,” said Keirstead and Sandler.
“Not so delusional. In terms of profitability, AWS was 52% of overall Amazon segment operating income in 3Q15. In other words, it is already more profitable than the rest of Amazon.”
AWS customers include Netflix and the CIA.
This sort of growth was surprising to a lot of analysts as many assumed it was a drag on Amazon’s profits. The surprising numbers helped Amazon’s stock explode, the note added.
“Amazon shares are up 100%+ since January when the company announced it would break out the segments, and up 60% since the actual 1Q15 AWS disclosures, adding $US110 billion of market capitalisation to Amazon this year,” the analysts said.
“On the 3Q15 call, the first two questions were about AWS. AWS may be only 8% of total Amazon revenues, but it has clearly become a big part of the Amazon investment thesis.”
AWS has room to grow, according to the note, because of Amazon’s dominant position and a total addressable market for public cloud services that is “near-infinite.”
Keirstead and Sandler suggest that now is the time for investors to go long on Amazon’s stocks to catch the benefits of “the biggest technology shift of our time.”
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.
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