Cloud computing has become a force to reckon with, especially in the backdrop of a global pandemic. Across industries, companies are shifting their workloads to the cloud as they see many benefits. For example, they can cut operating costs, increase data security, and improve productivity.
While cloud adoption was already on the rise, the COVID-19 pandemic has accelerated it. For example, more retailers now want to be able to sell online, which requires more cloud resources.
More schools and colleges now offer online classes to reach students who can’t make it to the physical classroom for reasons such as travel restrictions and the need to observe social distancing. Moreover, many companies are adopting remote work for their staff. Online classes and virtual offices are powered by cloud services. The pandemic has accelerated cloud transition across many other industries.
Alphabet’s (GOOGL) Google cloud business has recorded meteoric growth in recent years and now ranks as the world’s third-largest cloud provider. For its part, CrowdStrike (CRWD) has emerged as an important cybersecurity provider for enterprises. CrowdStrike delivers its solutions over the cloud. Will Google and CrowdStrike continue to shine in the coming years?
Google’s Cloud Business Continues Its Exponential Growth
In Q4 2021, Google’s cloud revenue increased 45% year-over-year to $5.5 billion. The business achieved that same level of growth in Q3 and it looks poised to continue strong growth for a long time. Global cloud infrastructure spending grew 37% to about $180 billion in 2021 and the market is expected to continue growing.
Google Finds a Winning Strategy in Cloud
According to Synergy Research estimates, Google ranks as the world’s third-largest cloud infrastructure provider with a market share of 10% at the end of 2021. Amazon dominates with a 33% market share, and Microsoft ranks second with a 21% market share. In a bid to bolster its cloud business, Google plans to acquire cybersecurity provider Mandiant for $5.4 billion.
In the tight competition for cloud spending, Google has found a winning strategy. It involves providing industry-specific solutions, which help it get big deals. For instance, in Q4, deals worth more than $1 billion grew 65% year-over-year. The company’s pitch is that it can offer better solutions than competitors by focusing on specific industries. Google’s major target industries in the cloud market are retail, manufacturing, financial services, healthcare, and energy. It also has developed solutions for the automotive, media, and entertainment industries.
Wall Street has awarded Google’s parent Alphabet stock a Strong Buy consensus rating based on 30 Buys. The average Alphabet price forecast of $3,490 implies upside potential of 34.4% to current levels.
CrowdStrike’s Reports Strong Growth
As companies digitize their operations, they also face growing cyberthreats. Protecting them is CrowdStrike’s business, and it has proved to be good at it. CrowdStrike continues to win more customers. In its Fiscal Q4 2022 ended January 31, the company added 1,638 new subscription customers to bring the total to 16,325. In a sign of strong customer retention, the company also reported an increase in the number of customers purchasing multiple products. CrowdStrike’s revenue for the quarter jumped 63% year-over-year, with subscription business leading the growth at 66%.
CrowdStrike Has Its Sunny Days Ahead
As CrowdStrike wins over more customers, it also obtains more data to improve its products. That leads to better protection, which in turn encourages existing customers to keep paying for the solutions and also attracts new customers.
CrowdStrike achieved annual revenue of $1.45 billion in its fiscal 2022, which represents only a tiny fraction of the available market opportunity. The company estimates its addressable market to be worth $126 billion by 2025, up from only $25 billion in 2019. The market opportunity continues to expand rapidly, considering the company previously estimated it would be worth only $45 billion by 2023.
As the market continues to expand, CrowdStrike predicts that its annual recurring revenue will exceed $5 billion in 2025.
Wall Street has awarded CrowdStrike stock a Strong Buy consensus rating based on 20 Buys and 1 Hold. The average CrowdStrike price target of $275.48 implies upside potential of 14.9% to current levels.
The Takeaway for Investors
Google and CrowdStrike still have huge growth potential ahead in the cloud and cybersecurity markets, respectively. While they are not the only players in their markets, Google and CrowdStrike have found ways to impress their customers, giving them an advantage in defending the market share they have gained.
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