Cloud computing stocks

In recent months, a number of technology companies have seen their share prices rise on positive news about cloud computing initiatives. The following are companies with a solid business already established in cloud computing. The list does not include companies that have just recently announced a new initiative.

Amazon (NASDAQ: AMZN) The company created a separate division, Amazon Web Services, to offer its hosted cloud platform which includes EC2 and VPC. AWS will have one advantage of over Amazon’s core business of ecommerce: profit margins should be significantly higher. Amazon initially entered the application hosting business to support the community of online retailers who receive sales referrals from Amazon. The services offered by AWS can be used by companies who are not selling merchandise through Amazon; no figures are available on the amount of sales AWS is booking, as of this writing.

Google (NASDAQ : GOOG) Google AppEngine is part of a broader initiative called Google Code. The goal is to establish Google as a standard-setter for Internet development, helping to insulate Google from Microsoft’s often-stated initiative of dominating Internet technology. The Google Code initiative is closely linked to Web 2.0; it began with tools to help developers build software that runs on Web pages, and it is closely tied with open source software. Google provides many of its apps free to individuals (including Google Docs and Gmail). But it sells cloud-based services to corporations allowing them to out-source corporate email and productivity tools. In that business, it is directly competitive with Microsoft’s Office product line.

IBM (NYSE: IBM) IBM stands to benefit from the move toward cloud computing in a number of its core businesses, since the company has continued to derive a large portion of its revenue from services that support corporate data centers. The Cloud Burst product line is actually a package of various IBM products designed to support a new cloud computing deployment. Other IBM product lines, such as Tivoli systems management software, will have strong sales opportunities as companies plan new clouds.

Microsoft (NASDAQ: MSFT) Microsoft was not well-positioned for the move to cloud computing but it has fast-tracked its Windows Azure development effort, which will begin charging for the first time in February 2010. It says more than $500 million have been committed to the service.

Rackspace (NYSE: RAX) Rackspace was an early pioneer in Internet hosting; it was founded in 1998 and is the largest pure-play hosting stock with over $500 million in annual revenue. It moved into cloud computing in 2006 by developing a cloud operating system that was initially called Mosso which provides the basic provisioning and resource scaling needed to manage a public cloud. Mosso has evolved into the platform running the Rackspace Cloud. Rackspace’s cloud business contributed 10 percent of revenue in the 3rd quarter of 2009; doubling from the year before.

Salesforce (NYSE: CRM) Salesforce was an innovator in hosted applications. The company was founded in 1999 with the concept of providing software through a Web application for managing sales and customer relationships. In recent years, it has built out application development tools that allow developers to create applications that tie into their corporate Salesforce databases. This has evolved into a broader platform, called Force, that can host a wide variety of business applications. The company attracted more than 10,000 software developers to its DreamForce conference where it showcases its Force technology. In February, 2009, CEO Marc Benioff claimed, “Salesforce.com is proud to be the first billion dollar cloud computing company.” The vast majority of the company’s revenues are based on software that supports sales and customer relationships, and not from cloud hosting.

Terremark (NASDAQ: TMRK) Terremark has been providing data center management to corporations dating back to 1982. It specializes in the government market and has made cloud computing a primary focus of its development efforts, partnering with VMware for the software infrastructure. In announcing 3Q 2009 results, the company credited the cloud computing initiative for its 17 percent revenue gain to $69.8 million.

VMware (NYSE: VMW) VMware sells software that creates a virtual environment for running applications which is a type of an operating sytem. VMware has virtualization software for a wide number of computing platforms, including desktop computers (its Fusion software allows Windows applications to run on a Mac, for example). Its Virtual Data Center products are now emerging as a leading platfform for managing a private cloud environment. EMC (NYSE: EMC), which sells large data storage systems, owns more than 80 percent of VMware; Cisco (NASDAQ: CSCO), a manufacturer of networking equipment, owns between 1 and 2 percent. These financial relationships position EMC, Cisco and VMware as a competitive alliance against IBM and Microsoft in the cloud space.