Cloud Suppliers Are 'Dramatically' Increasing Spending In 2016, But Why?

In a new report, Oppenheimer analyst Timothy Horan explained why he expects cloud adoption to accelerate in a major way in 2016. According to Horan, the cloud is now entering the steepest part of its "s-curve" adoption cycle, and Oppenheimer anticipates a 20 percent boost in cloud capex in 2016 as well as a 35 percent boost in cloud infrastructure investments this year.

“This trend bodes well for our entire coverage, from the wireless carriers given increases in mobile data usage to (and especially) our datacenter and networking companies, let alone the major cloud providers,” Horan explained.

Related Link: Expert Sees A $25 Billion Cloud Windfall Coming For Amazon, Microsoft And Google

Cloud spending by the top providers has grown from $18 billion in 2011 to more than $45 billion in 2015. However, capex growth took a breather last year, dropping from above 25 percent to the high single digits. By 2017, Oppenheimer predicts that top cloud companies will spend $61 billion in capex, nearly as much as the $67 billion in annual U.S. wireless/wireline capex.

Oppenheimer has Outperform ratings on the following cloud plays:

• Apple Inc. AAPL
• Amazon.com, Inc. AMZN
• Cogent Communications Holdings Inc CCOI
• Equinix Inc EQIX
• Facebook Inc FB
• Alphabet Inc GOOGL GOOG
• GTT Communications Inc GTT
• InterXion Holding NV INXN
• Microsoft Corporation MSFT
• Zayo Group Holdings Inc ZAYO

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