A buyers’ market
International Business Machines Corp. (NYSE:IBM) reported on June 4 that it is seeking to buy SoftLayer Technologies, which is the world’s largest privately held web hosting company. The firm already has 25,000 clients, including AT&T Inc. (NYSE:T) and Citrix Systems, Inc. (NASDAQ:CTXS). The acquisition would lead International Business Machines Corp. (NYSE:IBM) to create a division specifically targeted at clients interested in cloud services. With many businesses looking to expedite their operations, cloud technology is what many need to ensure their information is stored in a location that can be accessed easily by many devices. Furthermore, as the global business community becomes more integrated, drawing people away from desks and into more mobile capacities, cloud tech can ensure the easy transfer of information.
The acquisition of SoftLayer shows that IBM is serious about its move into this area. International Business Machines Corp. (NYSE:IBM) could make cloud computing its niche, as the firm hasn’t managed to break into many of the other major computer markets, such as tablets, computers, and smartphones.
While many investors may assume IBM is the underdog, due to the firm’s lack of recent performance, the company is actually able to compete with the big dogs. IBM spent $6.3 billion on research and development in 2012, and R&D is increasing slightly each year. That massive amount of spending is needed to get a product out to the market. While a huge amount is spent on R&D, the firm still managed a stellar 21% profit margin last year, and IBM has continued over the years to quietly rake in huge profits. I’m definitely considering buying this company in the next month or two because it appears to be on the verge of something big in cloud technology. Expect a major release in the next year or two that will put this company near the top of computer software development.
More competition is out there
International Business Machines Corp. (NYSE:IBM) isn’t the only company honing in on the cloud market. Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT) are also making plays, though they are doing it more organically.
Amazon.com, Inc. (NASDAQ:AMZN) seems to be successful at whatever it attempts, which makes Amazon Elastic Compute Cloud (Amazon EC2) a potential breakthrough that could make the firm a top competitor in the cloud computing market. EC2 provides users with a re-sizable compute capacity in the cloud, making web-scale computing much simpler. Those who use the service are able to control their computing resources and run them on Amazon.com, Inc. (NASDAQ:AMZN)’s cloud network. The device also decreases the amount of time needed to boot new server instances. As the user’s computer requirements change, the technology can allow scaling both up and down.
Amazon.com is a very speculative stock. Much of its activity is still in its infancy, as it attempts to break into a multitude of sectors. The release of Amazon.com, Inc. (NASDAQ:AMZN) Elastic Compute Cloud is a huge step for the firm, and the year ahead will show whether it catches on. The release also puts Amazon ahead of IBM if that firm doesn’t close the SoftLayer deal, which would be a leapfrog move for International Business Machines Corp. (NYSE:IBM).
Much of Amazon.com, Inc. (NASDAQ:AMZN)’s price is driven by the fact that it is a darling stock. People love Amazon and expect big things ahead — but the company will need to deliver to justify its share price. The firm looks overvalued, as it has one of the highest price to book ratios in the retail sector at 14.8. That’s an increase of 18% from last year. Hold back, but be ready to buy up the company if Amazon.com, Inc. (NASDAQ:AMZN) EC2 catches on, and especially if IBM balks at the SoftLayer purchase.
