According to a statement issued by the U.S. Government Accountability Office, (GAO) in November, “Federal agencies must move their data and software to the cloud when possible.” But there’s evidence that a significant number of agencies haven’t yet carried out this task completely. Consequently, companies that specialize in moving federal departments’ data and software to the cloud may have significant growth opportunities in the medium-to-long term.
And if these opportunities do arise and the firms are able to capitalize on them meaningfully, their stocks may climb by relatively large amounts in the coming years.
Many Agencies Haven’t Yet Moved Data and Software to the Cloud
One factor that had prevented some agencies from fully implementing a cloud strategy was extra fees charged by some software providers for using their products in conjunction with the cloud, GAO reported.
GAO also noted that “restrictive practices generally affected the cost of cloud services or their choice of cloud providers.” It indicated that these “restrictive practices” had prevented some agencies from fully transitioning to the cloud. Moreover, these issues appear to be fairly widespread as they affected five out of the six sizable agencies examined by GAO. The impacted agencies were the Department of Justice, the Department of Transportation, Veterans Affairs, NASA, and the Social Security Administration.
GAO suggested that it wants agencies to find ways to overcome these obstacles. Specifically, it “recommended” that they seek methods to “lessen the effects of restrictions on moving software to the cloud.” What’s more, according to one source, Washington’s civilian departments may spend a rather large $8.3 billion on the cloud transition in fiscal 2025.
In light of all of these points, cloud computing firms that cater to the federal government may be able to generate significantly higher revenue from Washington in FY25 than in the previous year.
A Potential Play on Washington’s Continued Cloud Investments
One company that may be very well-positioned to benefit a great deal from Washington’s cloud transition is SAP (SAP). That’s because the firm, which is based in Germany but has an office in Washington, disclosed on Dec. 12 that its SAP National Security Services (SAP NS2) subsidiary had received the “2024 Amazon Web Services (AWS) Federal Government Technology Partner of the Year award. ” AWS is the leading cloud infrastructure provider. SAP noted that its partnership with AWS had enabled the federal government to utilize cutting-edge technology while protecting its data.
Also noteworthy is that in the third quarter, SAP’s overall revenue climbed a strong 9% to 8.47 billion euros versus the same period a year earlier while its cloud revenue jumped 25% year-over-year to 4.35 billion euros and its operating profit soared 29% Year Over Year to 2.2 billion euros.
Finally, SAP now expects to generate 29.5 billion euros to 29.8 billion euros from its cloud and software businesses for all of 2024. At the midpoint of the range, that represents an increase of 400 million euros versus its previous outlook.
