Morgan Stanley: These stocks will benefit from the cloud computing boom

Google, Facebook, Amazon and Microsoft are expected to make up 73% of overall capital expenditure growth in 2018, according to Morgan Stanley.Morgan Stanley

Tech titans like Amazon and Microsoft aren’t the only ones that are benefitting from the mass migration of businesses to the cloud.

As cloud computing becomes more ubiquitous in the IT industry, those same cloud giants are ramping up the amount they’re spending on servers and data center equipment — and that’s great news for those vendors from whom they buy their hardware and software. 

Today, public clouds account for just 20% of all computing workloads, but that percentage could grow to 48% by the end of 2020, according to Morgan Stanley.

In a report published on Tuesday, analyst Katy L. Huberty forecast that global capital expenditure spending among 14 major cloud companies  will increase 35% in 2018, up from 16% growth in 2017. Morgan Stanley estimates that Google, Amazon, Facebook and Microsoft alone will account for 73% of that growth in 2018. 

These forecasts are based on spending at the companies which Morgan Stanley identifies as the most likely to invest in cloud infrastructure. It also includes other capital expenditure investments that the company might make, as well. 

Those dollars — spent by companies with large cloud businesses like Google, in addition to those who run their own clouds to power their business, like Facebook — will greatly benefit the vendors that sell data centers, servers and networking equipment. 

These are the 8 companies Huberty said have the most to gain from the growing cloud industry.

Nvidia, a Santa Clara, California-based graphics processor company, made its name in video games. But Morgan Stanley expects to see extreme growth in the company’s data center business — giving it the highest projected growth rate out of all of the companies listed.

Its valuation is high “due to open ended nature of virtual reality, autonomous driving, and data center opportunities,” according to the report. It turns out that Nvidia’s graphics hardware are also really good for artificial intelligence and other processor-intensive applications. 

Nvidia currently trades near $272, near Morgan Stanley’s price target of $273.