A $127 Billion Opportunity Coming In Cloud Computing

With its Second Annual Internet and Technology Conference being held in New York this week, Cantor Fitzgerald released a report summarizing its 2015 outlook for Internet stocks. The report included an in-depth look at the huge opportunity coming in the cloud computing space.

Related Link: Cantor's Top 10 Internet Stock Themes In 2015

What Is Cloud Computing?

While many investors have certainly heard a lot about “the cloud,” not all investors may fully understand what cloud computing actually is. In the report, analysts use the definition of the National Institute of Standards and Technology, which defines cloud computing as “a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.”

Analysts forecast that cloud computing will be a $127.5 billion industry by 2018.

3 Core Cloud Services

There are three main ways for IT companies to get in on the cloud revolution: Infrastructure-as-a-Service (IaaS), Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS).

According to the report, the largest of the three cloud “layers” is the SaaS market. Analysts expect the SaaS application market will grow 20 percent annually to reach $82.7 billion by 2018. The current leaders in the SaaS space include Salesforce.com, Inc. CRM, Automatic Data Processing ADP and Intuit Inc. INTU.

Analysts see the IaaS market as the fastest-growing segment of cloud computing in the next several years. Leading IaaS names include Amazon.com, Inc.’s AMZN EC2, Rackspace Hosting, Inc. RAX and International Business Machine Corp.’s IBM SoftLayer.

Finally, the PaaS market, which had already reached $6.2 billion by 2013, is led by Amazon’s AWS Elastic Beanstalk, Microsoft Corporation’s MSFT Azure, and Salesforce’s Force.com.

Top Stock Picks

In the SaaS space, Cantor Fitzgerald analysts believe that Workday Inc WDAY is in the best positioned company moving forward. The report also names Red Hat Inc RHT as the top pick in the PaaS space. Finally, analysts name F5 Networks, Inc. FFIV and Oracle Corporation ORCL as top picks across all layers of the cloud.