Amazon's fastest growing business has a surprisingly strong competitor in China
That makes it the largest public cloud vendor, far outpacing its two main competitors, Google and Microsoft, in this space.
But Goldman Sachs believes AWS's real competition could soon come from a company that's not even based in the US: Alibaba.
In a note published Tuesday, Goldman Sachs writes Alibaba's cloud computing business, called Aliyun, is on pace to generate $5 billion in revenue by 2019, giving it an enterprise value of $42 billion by then.
That's still a fraction of the $178 billion in enterprise value AWS is expected to reach by 2019, but it would place Aliyun in firm second place in the cloud infrastructure space, Goldman Sachs writes.
"At these values, [AWS and Alibaba] would be two of the largest infrastructure technology companies in the world," the note said.
Goldman Sachs noted Aliyun's cloud quarterly revenue jumped a staggering 140% year-over-year, and has generated roughly $600 million in total revenue over the past 12 months, almost at the same level of what Google's cloud service is estimated to have done in the same period. But despite its fast growth, Aliyun remains largely unprofitable, seeing negative 35% operating margins last quarter - unlike AWS's 30% operating margin.
Goldman Sachs isn't the only Wall Street firm to notice Aliyun's massive future potential. Baird Equity Research wrote in a recent note that Aliyun is still "undervalued" by many investors and there's a huge long-term opportunity because of its focus on the Chinese region. It wrote:
"In our view, many investors currently undervalue Aliyun's long-term market opportunity, and we believe Alibaba is well-positioned to be the cloud computing leader in China due to preferential government policy, regional focus, domain expertise from operating the core Alibaba marketplace sites, and an inherent advantage among SMEs due to Taobao and Tmall."
And with the Chinese IT market expected to keep its robust growth rate, Aliyun's business will only get bigger, according to market research firm SunTrust:
"Looking forward, we anticipate strong revenue growth will continue as cloud takes share of the ~$30-40B IT market in China. Further, AliCloud forecast that the China IaaS market would grow from ~$0.6B in 2015 to $7.8B in 2018. With this secular tailwind, Alibaba was confident at analyst day it could support multi-year growth >100% based on those projections."
Here's a chart of China's cloud infrastructure market growth from SunTrust's note: