Amazon (AMZN) Announces Availability Of VMware Cloud On AWS

Amazon.com, Inc.’s (NASDAQ:AMZN) Amazon Web Services (AWS) and VMware (NYSE:VMW) recently announced that VMware Cloud is now available on AWS.

The deal stems from the strategic alliance that the duo unveiled in October 2016 to offer an integrated hybrid cloud solution, functioning much like a software-defined data center (SDDC).

Shares of Amazon have gained 28.2% year to date, significantly underperforming the industry’s 47% rally. VMWare stock, on the other hand, has gained 33.9% over the same time frame, substantially outperforming the industry’s 22.7% rally.

Door Open for a Seamless Hybrid Cloud Solution

The partnership makes private and public cloud infrastructure connectivity seamless. Users are now able to run VMware vSphere-based public, private, and hybrid cloud platforms on the Amazon cloud apart from internal servers. They can deploy and manage applications across AWS as well as vSphere-based on-premises.

Growth Prospects in Hybrid Cloud Infrastructure

Per Gartner, by 2020, 90% of organizations will adopt hybrid infrastructure. Cloud compute services are expected to grow from $23.3 billion in 2016 to $68.4 billion in 2020. Hosting and collocation spending is expected to surge to $74.5 billion in 2020 from $53.9 billion in 2016. Infrastructure Utility Service (IUS) is projected to grow from $21.3 billion in 2016 to $37 billion in 2020. Storage as a service will rise from $1.7 billion in 2016 to $2.7 billion in 2020.

We expect both the companies to gain momentum from the growth prospects offered by the sector and their own ability to make the most of it.

A Win-win Situation

We see the move as Amazon’s latest gambit to increase its market share in the cloud computing business. It intends to give customers a solid reason to opt for AWS by making it easier for them to integrate VMware software in AWS cloud.

Amazon.com, Inc. Net Income (TTM)

Customers across the globe can now select a nearby Amazon data center for cloud migration. In the process, while Amazon gets more customers, VMware leverages on Amazon’s global footprint without additional capital expenditure or expertise.

Moves like this makes sense as the speed at which businesses are moving to the cloud and innovating in the space has intensified competition. We remain optimistic about the functionality, partner ecosystem and the experience that AWS offers and believe this will lead to continued customer wins.

Over the past five years, VMware has struggled to cope up with increasing adoption of cloud-based solutions. But this partnership will surely be a big positive and position the company to benefit from the trend.

Partnerships Hold the Key

As the world moves toward flexible and cost-effective storage and operations, the usage of hybrid cloud is increasing. It enhances the flexibility of computing as it can be scaled up per clients’ demand. Thus, a large number of technology players are increasingly jumping on the bandwagon and vying for an edge in this competitive and lucrative business.

To gain an edge and leapfrog competitors, many of these players are forming partnerships. In February 2016, VMware entered into a similar deal with International Business Machines Corporation (NYSE:IBM) to enable VMware’s VSphere customers initiate workloads on IBM SoftLayer cloud infrastructure.

In June 2017, Alphabet’s (NASDAQ:GOOGL) Google partnered Nutanix to merge Google Cloud Platform (GCP) with the Nutanix environment to offer customers a unified public cloud service.

Currently. Amazon holds a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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