September 25, 2023

The Third Supermajor

As an owner of Amazon for specifically its AWS asset, I am sympathetic to the concerns some have voiced about the rise of Azure and GCP.

However, in my estimation, history can be a guide in forecasting what the future may look like for the Infrastructure as a Service/Platform as a Service industry, in which AWS, Azure, and GCP have formed an oligopoly, or something very near to it.

Over the last 50-100 years or so, some version of Exxon Mobil (XOM), Chevron (CVX), and Royal Dutch Shell (SHEL), now just Shell, operated in something akin to an oligopoly. These are earth's three "Supermajor," vertically integrated oil and gas companies that have dominated, again, in some form, (mergers, acquisitions, antitrust should be noted) over the last 50-10 years.

If data is the new oil, then I believe the new vertically integrated supermajors will be AWS, Azure, and GCP in the 21st century.

With these ideas in mind, Alphabet's GCP has been performing quite exceptionally as of late.

Alphabet's Google Cloud Platform [GCP] Growth, Six Months Ended June 30th, 2023

Alphabet's 10-Q 2023

As can be seen above, GCP now operates at about a $30B annualized revenue run rate, with about $1B in operating income currently.

This is fairly incredible, and this performance buttresses the idea that GCP will find itself as the third supermajor data platform in the decades ahead, alongside AWS and Azure.

Infrastructure as a Service Market Share, AWS/GCP/Azure

Chart: Amazon Maintains Lead in the Cloud Market | Statista

In the above data, we can see an oligopoly forming, with GCP, Azure, and AWS leaving the other three companies behind. I think it's notable that Alibaba (BABA) will likely never materially capture market share globally, due to privacy concerns related to the CCP. But I digress.

In short, I think it could be argued that GCP is worth, today, about $200B to $300B in total enterprise value, were the market truly an efficient mechanism pricing in the net present value of all future cash flows for the enterprise. This suggests that GCP has now become a very material contributor to the overall Alphabet thesis, which is incredible insofar as the company has demonstrated the ability to successfully field new products, notwithstanding such immense success from Search and YouTube.

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