Estimates have been on the upswing, slightly, for how much money #Facebook ( #FB ), #Apple ( #AAPL ), #Amazon ( #AMZN ), #Alphabet 's ( #GOOGL ) #Google unit, and other cloud companies may spend to build those clouds, according to a note today from RBC Capital’s Amit Daryanani, who regularly tracks estimates and actuals for a group of 18 of these cloud companies.
An expected $60 billion in cloud capital spending this year could be a positive development for #Intel ( #INTC), #Nvidia ( #NVDA), and Broadcom(AVGO), Daryanani believes.
The overall trend is that after 17% growth in cloud capital spending last year, for a total of $52.48 billion, the total should rise 15% this year and rise again to 17% growth in 2018, according to his own models, and data from FactSet.
In addition, the growth rates have been improving of late, based on spending in the June quarter of this year, and what’s expected for Q3:
Over the past 3 years, average/median y/y growth rates have been on a downward trajectory from the 30-60% range to the 0-20% growth range in the past year, however as of June/September, there appears to be some picking up of growth. In the Jun-qtr, the mean y/y change was positive at +38%, while the median y/y change was also positive at +20%. The Street expects mean y/y growth to be 54% in the Sep-qtr, while median y/y growth to be +19%, indicating some positive skew in the data. Over the past 8-9 months, Street estimates for CY17 have risen to ~$60B, while CY16 capex spend at ~$52B was slightly higher than initial estimates. Street estimates for 2017 have risen by ~$4B over the past year.
Daryanani explains some direct benefits to the three chip makers:
HDDs and Semis Have The Most Significant Exposure to Cloud CapEx in Our Coverage: Within our coverage, HDD companies and select semiconductor companies have significant exposure to cloud capex spending. Within semiconductors, we highlight Intel, Nvidia, and Broadcom. For Intel, cloud and hyperscale spending is a fast-growing portion of Intel’s NAND and Data Center Group business and could account for ~1/3 of DCG revenues ($6B of ~$17B in 2016 DCG revenues). Nvidia has exposure through their Tesla and Quadro businesses. Broadcom has exposure to the cloud through their Enterprise Storage segment (HDD controllers) and general data center buildouts in their Wired Infrastructure segment. Within HDDs, enterprise units are 15-20% of the business on a unit basis and 20-30% on a revenue/profit basis. We estimate cloud/hyperscale buildouts contribute to 65% of the segment. Cloud and hyperscale spending is probably the fastest growing subsegments within the enterprise businesses of the HDD manufacturers.
In case you were wondering, among the 18 companies that spend on cloud that Daryanani tracks, Apple is the single biggest spender, at 24% of the total spent in 2016. Google was next at 19%. Microsoft (MSFT) was third at 17%.
Daryanani has an Outperform rating on Nvidia stock, and a Sector Perform rating on Intel shares
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