Amazon Web Services: Best Growth Story Of The Decade?

• Deutsche Bank predicts that Amazon.com, Inc. AMZN's AWS will be a major cloud infrastructure disruptor in the next decade.
• With AWS as the clear leader, Deutsche Bank sees Microsoft Corporation MSFT as the other primary beneficiary from the cloud transition.
• The firm believes that the market does not yet fully value the potential of the cloud in the share prices of these companies.

In a new report, Deutsche Bank analyst Karl Keirstead takes a close look at the public cloud infrastructure market. Keirstead gives his take on the two largest cloud competitors and how much disruption they will cause in the IT space.

AWS

Keirstead calls Amazon Web Services (AWS) the “fastest-growing enterprise technology company y in history.” The impact of this growth has been apparent in Amazon’s share price, which is up about 60 percent since the company first started disclosing AWS financials in Q1 of 2015.

Related Link: Why Amazon Is Still Worth $620 Per Share Heading Into Earnings

Deutsche Bank is estimating $16 billion in revenue for AWS in 2017. Assigning a 10x multiple on this revenue yields an enterprise valuation of about $160 billion.

“While many investors are already long Amazon shares on an AWS-centric thesis, we conclude that this is by no means a consensus thesis yet and that Amazon shares are likely to continue to outperform as investors increasingly recognize the value of AWS,” Keirstead explains.

Azure

According to Deutsche Bank, Microsoft is the clear No. 2 player in the cloud infrastructure market. The firm estimates that Azure is now at a run rate of about $1.4 billion and growing by 135 percent as of Q3. Although Azure’s current contribution to Microsoft’s revenues is relatively small (about 2.0 percent), Kierstead believes that the market is starting to realize that Azure could end up being Microsoft’s savior when it comes to staying relevant in the enterprise market over time.

Outlook

Keirstead believes public cloud infrastructure will cause major disruption over the next 10 years, but believes there will be relatively few winners outside of Amazon and Microsoft. Deutsche Bank predicts that on-premise IT infrastructures will decline by 25 percent over the next decade.

Deutsche Bank maintains Buy ratings on Amazon, Microsoft and salesforce.com, inc. CRM.

Disclosure: the author holds no position in the stocks mentioned.