The top-performing FAANGM stocks (AMZN, MSFT, GOOGL) have something in common: a rapidly growing cloud business.

• What it does: Cloud platforms help customers store or access data virtually on the cloud, provide computing resources to run applications and more.
• Why it matters: 94% of enterprises are already on the cloud, and 30% of IT budgets are dedicated to cloud services.

Growing importance: The cloud divisions of these three giants have also become one of their fastest-growing segments.

In their recent quarters, Microsoft Azure grew 46%, Amazon AWS grew 36.5% and Google Cloud grew 44% — much faster than their total sales growth.

• In the recent quarter, cloud made up 8.5% of Alphabet’s sales and 15.8% of Amazon’s sales.
• Microsoft’s Intelligent Cloud segment (including Azure and other cloud-related services) became larger than its other two segments — making up 35% of sales.

Microsoft CEO Satya Nadella estimated tech spending as a percentage of GDP to double by the end of the decade. If this plays out, cloud will become an increasingly significant part of these stocks’ growth stories.

Growing dominance: In the fourth quarter of 2021, MSFT, GOOGL and AMZN controlled 64% of the cloud market (AMZN at 33%, MSFT at 21% and GOOGL at10%).

• The dominance of these three companies has only grown from controlling 44% as of Jan 2016.
• The next five companies made up 18% of the market: Alibaba (6%), IBM (4%), Salesforce (3%), Tencent (3%) and Oracle (2%).

Per Synergy Research Group (The Register), cloud providers are having trouble competing with the scale and reach of the three market leaders.

In the first quarter, the cloud industry grew 34% year on year. While growing IT spending benefits all cloud providers, the leaders could continue to dominate, just like they did with their core products.