Fortune 100 Firm Goes Toe-to-Toe vs Amazon

Most of the time, there is a direct relationship between risk and reward when it comes to investing. The two move in lockstep, and investors must accept the higher level of risk that goes along with high-growth stocks. However, occasionally there are companies that offer the best of both worlds – high growth, strong returns, and a solid business that can withstand economic ups and downs.

Amazon started out as a high-risk venture. The internet wasn’t a part of day-to-day life for consumers in 1994, and the idea of buying books online was met with deep suspicion. There was a point when Amazon nearly went out of business, and the only reason it stayed afloat was innovation in the area of cloud computing.

Thanks to the launch of Amazon Web Services (AWS), Amazon reduced the cost of conducting its e-commerce operations to a manageable level. Better still, AWS added a bit of revenue to Amazon’s top-line results, which cushioned the dips in e-commerce sales that come as part of a typical retail business cycle.

Who Are AWS’s Biggest Customers?

For years, e-commerce was Amazon’s core business, and the cloud computing side of the company was all but forgotten. The digital transformation brought AWS into the spotlight, and as major organizations transitioned to cloud computing, AWS grew. Being first to market positioned AWS as an industry leader, and AWS was the first choice for some of the world’s biggest brands.

For example, Best Buy, BMW, Boeing, Meta (formerly Facebook), Netflix, Rivian, and Salesforce all rely on AWS for critical infrastructure. Those companies, along with thousands of others, have made it possible for AWS to control 34 percent of the cloud computing market share as of second quarter 2022.

Holding a third of any market is an enviable achievement, but AWS’s success is particularly impressive when the size and growth rate of the cloud computing market are considered. In the second quarter of 2022, cloud infrastructure spending was approximately $55 billion, bringing the total for the preceding 12-month period to more than $200 billion. It’s worth noting that second-quarter 2022 spending on cloud computing grew 29 percent over second-quarter 2021.

Who Are AWS’s Biggest Competitors?

Many companies are interested in pulling cloud computing market share away from AWS, but to date, none have succeeded in making any discernible impact. Microsoft Azure and Google Cloud hold the second and third place positions at 21 percent and 10 percent of the market, respectively, but even when taken together, they can’t match AWS.

The next five largest cloud computing providers include the following tech companies:

• Alibaba Cloud – 5 percent of market share

• IBM Cloud – 4 percent of market share

• Salesforce – 3 percent of market share

• Tencent Cloud – 3 percent of market share

• Oracle Cloud – 2 percent of market share

Other relatively large cloud computing vendors include Baidu, China Telecom, China Unicom, Fujitsu, Huawei, NTT, Rackspace, SAP, and Snowflake. Each of these companies controls approximately one percent of the global cloud computing market.

Based on current figures, it appears that AWS is in a position of power, and Amazon can continue to rely on AWS’s growth to offset any decline in its e-commerce business. Competitors are so far behind from a market share perspective that Amazon shareholders typically discount them altogether when considering potential threats. However, that could be a mistake.

Recent remarks from Oracle Founder and Chairman Larry Ellison suggest that Oracle is coming for AWS clients – and Ellison hinted that, in fact, his company has already succeeded in persuading some of AWS’s most significant clients to make a switch.

Oracle Cloud (OCI) vs. AWS

Oracle has been in the software business since 1977 and has built a respected family of enterprise resource planning (ERP) tools that few companies can do without. Organizations of all sizes rely on Oracle products to manage supply chain operations, accounting, compliance, and project management.

The cloud computing division of Oracle, known as Oracle Cloud Infrastructure or OCI, launched well after AWS – 2016 vs. 2006. While OCI made it onto the top ten list of cloud computing infrastructure providers by market share, it controls a tiny fraction of the market compared to AWS, Azure, and Google Cloud.

However, when factors other than current market share are taken into consideration, the Oracle Cloud vs. AWS competition heats up. Oracle’s fiscal first-quarter results showed that OCI grew its cloud infrastructure revenue by 58 percent year-over-year. Cloud application revenue went up by 48 percent year-over-year.

While most Amazon investors don’t appear concerned with the potential threat posed by Oracle, a small group has started to get nervous. After all, Oracle is the only cloud computing company that can offer clients a comprehensive package of ERP software in addition to cloud infrastructure.

Certainly, Oracle ERP software is compatible with other cloud service providers, but customers that get both services from Oracle enjoy certain advantages. The biggest is that they don’t have to wait through the lag time while data migration between clouds occurs. Instead, they can perform real-time analysis and quickly respond to findings – a must in this fast-paced environment.

Oracle’s MySQL HeatWave has already demonstrated its superior performance compared to AWS and other providers, such as Snowflake. MySQL HeatWave performs seven times better than the equivalent Amazon product and is ten times better than Snowflake’s offering. On top of that, MySQL HeatWave is far less costly than the AWS alternative, which is more than enough to convince AWS clients to consider a switch.

Oracle’s Bombshell

Chairman Larry Ellison was clearly excited about Oracle’s future when he spoke at the company’s most recent quarterly earnings webcast. He discussed Oracle’s cloud services and showed particular enthusiasm when describing how clients can benefit by moving onto Oracle’s cloud infrastructure. Then the bombshell came. Ellison said:

We expect next quarter, we’ll be announcing some brands and companies moving off of Amazon to OCI (Oracle Cloud Infrastructure) that will shock you.

Nothing is certain at this point, but if Oracle comes through on this promise, the shocks will be felt throughout the industry. Oracle may begin pulling market share away from AWS, and there is no way to predict how much until the details are made public.

Suffice it to say that investors’ interest is piqued – and Amazon shareholders are considering their next move. Do they stick with Amazon stock under the theory that AWS has a firm hold on the market, or do they buy Oracle stock while it is relatively low based on the premise that Oracle stock is about to go up?

For now, most Amazon shareholders aren’t selling their Amazon stock and replacing it with Oracle, but the window of opportunity may be short-lived. Those willing to take the risk in exchange for higher potential rewards are better off buying Oracle stock.