The Cloud Potential Is Sky-High | American Funds

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Investment Insights

May 2015

The Cloud Potential Is Sky-High

“There is a fabulous stream of new companies, disruptive companies, that come along and take the world by storm.”

— Jonathan Knowles

Jonathan Knowles Singapore office 25 years of experience (as of 12/31/16)
So high, so fast: Amazon Web Services is the fastest growing business in the history of enterprise IT

Revenue from the cloud came fast for AWS

Sources: Capital Group and SEC (U.S. Securities and Exchange Commission) reported company financial filings. Data are estimates.

First off, all of your music and pictures aren’t really up in the air. The cloud is a cool name, but the reality of data storage and computing is more akin to a farm than the sky. In fact, Amazon, Google, Apple, Microsoft, Facebook and others run massive facilities around the world filled with servers that handle billions of transactions (one of Facebook’s facilities has 950 miles of cable). The cloud, very simply put, refers to software and services that run on the Internet instead of your computer.

Although its origins date back to the 1960s, cloud computing has become a hugely disruptive force in roughly the past decade, driving innovation and leading to numerous new business models. Because companies can now rent services they use via the cloud, companies that sell computer hardware are among the disrupted.

The security of the cloud remains an issue for some, but a tipping point occurred in 2013 when one of the world’s most private organizations — the Central Intelligence Agency — decided to trust the cloud. The CIA selected Amazon Web Services (AWS) to build its private cloud, a $600 million job that Wired magazine called “a seismic shift in cloud computing.”

AWS now dominates the cloud, with Google and Microsoft playing catch-up. The chart shows how quickly the cloud generated revenue for AWS, going from $500 million to nearly $5 billion in five years. By 2017, enterprise spending on cloud computing will amount to a projected $235 billion, triple the $78 billion spent in 2011, according to researchers at IHS Technology.

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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.