Can These 3 Stocks Jump on Cloud-Computing Trends?

Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If one were to name the top few tech trends of 2013, cloud computing would surely be toward the top of the list. This new trend has caused a surge of start-ups in this market, as well as pushing companies to begin offering cloud data storage. Most of these services allow syncing files across several devices, and quick and easy sharing capabilities, which allows people to upload and access their digital lives from anywhere.

Recently, the CIA has been looking to expand into the cloud and has its eyes on either Amazon.com (NASDAQ: AMZN) or IBM for support. There are several companies to watch in this market, but with this news, I see Amazon joining the ranks of Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL) as a leader and a good bet for investors.

Google: The solid provider

Google's Drive online file system is its answer to the cloud-based storage offering question, but the power behind it lies in the ease of use for every consumer. It is essentially making the cloud available to all for everyday use. With sync capabilities that integrate Google Docs, Google Apps, et al, the certain eventuality of it shipping with every Android phone will boost usage.

Google Drive has not generated massive amounts of revenue for Google, as Google Apps account for less than 1% of Google's total revenue. However, Google is able to use the usage data generated by users to improve its personalized search offering, ad targeting, and possibly bolster revenue from its core advertising business (also known as the other 99% of its revenue).

Companies seem to be looking to Google in order to gauge its effectiveness. Google Drive was one of the main thrusters in pushing Microsoft to a hefty and ongoing investment in Office 365 -- the online edition of its productivity suite.

Apple - The convenient choice

Apple is also in the cloud game with iCloud, which syncs each of a user’s files into all of their Apple products through iCloud, which comes with an embedded email account. The downside of this is that it targets only current Apple users – those who would find it most convenient to sync their music from iTunes and their docs from iWork- and leaves out those who just want to upload a document.

On the upside, the company went to great lengths in recent days to point out that it's ‘getting there’ and that Apple is migrating toward the web with its applications. It also announced the upcoming version 7 of iOS that will update iPhones and iPads this fall, and its update to the office productivity suite as it relates to the cloud.

It is no secret that the stock has been through the trenches this year. However, as I see it, the single greatest threat to Apple's stock over the next several months is the direction of the broader stock market. In the absence of a real game-changing product, Apple will be subject to the vagaries of the overall equity market. Even if stocks can continue to run higher from here, a correction is likely over the course for the rest of the summer and fall. When this happens, Apple's stock is likely to hover in the $420’s.

Amazon: The growing force

Along with these two leaders is Amazon. The world's largest online retailer has grown from just selling books to being an online ‘everything store’ as well as producing consumer electronics - notably, the Amazon Kindle e-book reader and the Kindle Fire tablet computer.

Not widely recognized, however, is its more than five-year presence in the cloud- computing industry. The giant, which now sells practically everything, provides Amazon Web Services (AWS), allowing companies of all sizes to rent hosted computing and storage. The company is extending its reach by bundling content through Amazon Prime, and reaching more users by selling tablet-device hardware almost at-cost.

It has caught the attention of the CIA, which, as previously mentioned, is looking for a place to hang its proverbial hat. Both Amazon and IBM are contenders for the $600 million contract to set up a cloud-computing system for the company. While IBM has long supplied the U.S. military and intelligence services with computers, software and the know-how to operate them, a win for Amazon could help unlock doors with other security-sensitive government agencies and commercial clients like Wall Street banks—big.

Fundamentally, Amazon is somewhere in the middle of the two aforementioned stocks. While total revenue has increased every year, operating income has been on a slight decline over the last few years, going from $862 million to $676 million in 2011 and 2012, respectively. Earnings per share is expected to dramatically increase in subsequent years, which can be mainly attributed to the expectation that Amazon will become a bigger name in cloud computing.

The 200-day moving average is rising, indicating a bullish trend, and the current stock price is 22.6% below its one-year target estimate of just over $315. There are other fights Amazon is embroiled in as well, such as declining use for the past two quarters, a forward P/E of 71.9, and a tablet war with both the Apple icon and the Google/Samsung powerhouse. All that said, the third-party platform is still growing 40% year-over-year, and with e-retailing growing by the day, Amazon is still in a good position.

Summary

Estimates put current public cloud services upwards of $50 billion for 2013 and growing to a staggering $70 billion in 2015. This growth is approximately four times faster than the IT market as a whole. Cloud-based applications are becoming an easier, more cost-effective way to operate.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with more than 1000% gains. However, as the cloud computing continuum continues to flourish, investors should consider Google and Amazon as the ‘aces’ for this hand.

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Bill Edson has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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