Exploring the Edge: AWS, Microsoft Boldly Go Where No Service Has Before
The cloud was a seismic shift for enterprise computing. The next big move, to the edge, is going to be even more important.
Amazon Web Services, the leading cloud provider, is getting ready for that move. The Amazon.com (AMZN) unit announced three new edge computing products Tuesday.
And this development is going to create a new batch of winners.
Here’s how … and two early standouts.
Cloud computing started out as a way for enterprises, non-profits and government agencies to cut costs. Previously, companies would be responsible for buying the equipment necessary to store and protect all their data.
So, it made economic sense to rent computing bandwidth and data storage in data centers, rather than building and maintaining standalone facilities.
That’s exactly what AWS offers.
A cloud services contact with AWS means the end of new equipment costs and all the man hours required for maintenance. In fact, I’ve been running my business on AWS for the past 15 years.
But this system has its own shortcomings, namely latency.
Although cloud computing companies have made massive investments building new data centers and laying fiber optic cable, the physical location of the facilities still limits how fast data gets bounced around the network.
As workloads have become more complex, shaving off a few milliseconds here and there is a big deal.
That’s why these new AWS products — AWS Outposts, Local Zones and AWS Wavelength — are an important addition to Amazon’s cloud services division. They are designed to move data processing closer to the customer and end users.
- Outposts is a server rack. Software links the AWS-designed hardware to its larger cloud infrastructure. This makes it ideal for customers who want to run sensitive applications onsite, while providing an easy gateway to take advantage of the cloud for more generic workloads.
- With Local Zones, AWS will use Outpost server racks to build mini data centers in strategic locations. Bloomberg reported Tuesday that the first Local Zone will pop up in Los Angeles. This should help local Disney (DIS) animators avoid some of the bottlenecks they faced using AWS servers located in Oregon.
- The final product, AWS Wavelength, is even more interesting. It’s part of a larger scheme with Verizon (VZ) to bring 5G networks inside AWS.
The plan is eerily similar to an arrangement between Microsoft (MSFT) and AT&T (T) announced in November: using software to embed important compute and data storage services onto 5G cellular equipment.
This would open up new applications like autonomous drones, driverless cars and traffic lights that adjust to vehicle volume in real time. Today, most of these implementations remain science fiction.
True edge computing will make these big ideas reality.
Amazon.com and Microsoft are the obvious plays for investors. But it’s the less-obvious play that I’m interested in.
That opportunity is in the firms that will ultimately provide the gear needed to push computing closer to the edge.
Let’s take a look at two such companies …
Nutanix (NTNX) makes Software-as-a-Service products that converge enterprise compute, storage and virtualization into one layer of software. As more data processing moves from the large data centers to the edge of networks, convergence becomes more important than ever.
On Monday, Gartner declared that Nutanix makes best-in-class software.
This is a big deal because the total addressable market for hyperconverged infrastructure, according to market-research firm IDC, grew by 23.7% year-over-year in the second quarter of 2019.
And this market is expected to grow by 50% next year.
Nutanix sales rose 7% in fiscal 2019, to $1.24 billion. At $36.15, the stock trades at 4.5x sales.
That is relatively inexpensive given the potential size of the hyperconverged market. It’s also far off the June 2018 high at $65.
Another way to play the coming boom in edge computing is Nvidia (NVDA).
The firm cut its teeth making high-end graphics hardware for PlayStations and Xboxes. Its graphic processing units have always been the best of the best.
More recently, the Santa Clara, Calif., company has been busy remaking its business around artificial intelligence and new edge computing solutions.
These days, that means small boxes attached to light posts, buildings and communications towers. This is the gear the company is building to collect and process timely streams of data on the fly, then bounce the rest of the information up to cloud-based data centers.
Its Nvidia EGX Supercomputing platform is the heart of this system. It’s a combination of cutting-edge hardware and software based on scalable virtual radio networks.
Shares trade at 30.1x forward earnings and 12x sales. Although these metrics might seem high relative to other technology companies, they are in keeping with the heady longer-term growth rate for Nvidia’s business.
The bottom line is the next big wave of computing is on the horizon. It’s going to be a huge new opportunity for investors, no matter how you decide to play it.
Jon D. Markman