3 Reasons Alphabet Investors Should Pay Attention to Google Cloud

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Google’s parent company Alphabet Inc. is under serious legal challenge lately. The Department of Justice (DOJ) has labeled it a monopoly and this may lead to drastic measures such as the divestiture of its Android operating system or Chrome browser. There is simultaneously a possibility that Alphabet may need to stop paying third parties to make Google as the default search engine. However, the company has plans to appeal as the situation has generated serious concern among investors.

There is a bright side of it too. Investors should not overlook the Google Cloud as it is becoming a key growth driver for Alphabet. There are several reasons why it deserves more attention from investors.

Google Cloud is making good move in expanding its market share in the competitive cloud computing sector. It is comparatively small now with respect to major players like Amazon Web Services (AWS) and Microsoft Azure. But it is growing faster than the rivals and recent data from Synergy Research Group shows that its market share is increasing at a faster pace. Hence, Google Cloud is performing well and gaining ground.

The success of Google Cloud is partly due to its innovative technology. Cloud computing traditionally has relied on processors that were repurposed from other uses. However, Google’s new Axion chips are designed for cloud computing and artificial intelligence tasks. It offers a significant performance boost. The chips provide 30% better performance than general-purpose chips and even 50% better than basic processors from Intel and AMD. Hence, the technological advancement positions Google Cloud as a strong competitor against Nvidia.

Google Cloud has also shown potential for increased profitability and this could impact Alphabet’s bottom line. Google Cloud recently turned a profit and it still has room for growth compared to its competitors. Google Cloud generated $10.3 billion in revenue, with $1.2 billion of that becoming operating income, in the last quarter. It is a promising start. However, it is still lower than the 36% operating profit margin of AWS and 45% for Microsoft’s cloud services.

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