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Amazon.com, Inc. (NASDAQ:AMZN) is stepping up its fight against its rivals by adding a new feature to its cloud-computing services. Although the addition is mundane, it could help trigger a massive surge in Amazon stock (AMZN stock).
Let me explain…
As the largest e-commerce company on the planet, Amazon processes mounds of data every second. It needs to sort and store this data, so it built massive data centers across the world. (Source: “Amazon’s New Feature Aims to Lure Big Companies to Its Cloud,” Fortune, December 12, 2016.)
Eventually Amazon realized that other companies must have similar needs for data storage and processing. It was a lightbulb moment. Why not build extra data centers and give customers remote access? Amazon could even design business software tools so that customers can make the most use of the data that Amazon collects. The idea caught on like wildfire.
Before long, the new division—called “Amazon Web Services,” or AWS—was churning out record-breaking profits. Thousands of small companies flocked to this “public cloud” in search of easy-to-use cloud services but, sadly for AMZN stock, the big corporations remained aloof.
They had deep relationships with traditional IT vendors like International Business Machines Corp. (NYSE:IBM), not to mention the obvious security concerns. Multi-billion-dollar businesses were naturally skeptical of putting their entire workbook on a “public cloud.”
These potential clients wanted to maintain their autonomy. Amazon heard their complaints and, consequently, added on features to lure in the big bucks. It copied strategies used by IBM and others, letting big corporations have special combinations of “public” and “private clouds.”
But that’s only the tip of the iceberg. Now Amazon has added a special feature called “AWS Managed Services.” This means that it will provide IT workers for regular maintenance checkups; patching and updating software, ensuring the software changes are consistent; basically anything that is dull and no one really wants to do.
Even the largest of corporations has to perform these routine tasks, but now Amazon is offering them the VIP treatment. The tiny niche companies in this sector are probably shaking in their boots now that Amazon is stepping into their territory, but hey, that’s business for you.
No company can outrun economics. So long as Amazon can afford to buy everything in bulk (and at wholesale prices), it gets to operate more efficiently. Add that to the fact that Amazon loves to undercut competitors with low prices and these tiny rivals are toast.
Based on these moves, we believe that AMZN stock will continue to be the front-runner of cloud-computing stocks. Since there is a ton of growth left in this industry, it logically follows that Amazon stock is due for further gains.