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The public cloud has the potential to become a global utility, analogous to electricity — driving higher valuations for cloud providers and more widespread adoption by business customers than many currently expect, according to Morgan Stanley.

Analysts for the financial services firm present that scenario as a realistic “bull case” in a report that takes a fresh look at the potential valuations of cloud providers such as Amazon Web Services, Microsoft Azure, Google Cloud Platform and IBM.

“As a foundational technology for a broadening set of work, Public Cloud is driving much broader implementation of existing application workloads and is enabling the creation of new types of applications,” write Morgan Stanley analyst Katy Huberty and colleagues in the March 15 report. “Analogous to electricity, which started as means for replacing steam engines in factories and candles at home, this foundational platform drove innovative new use cases and new technologies which transformed business and consumer processes.”

The report, “Public Cloud, What’s It Worth?” also includes a “bear case” in which the cloud merely serves as a replacement for existing corporate data centers. However, the analysts assign this scenario a low probability — saying it would take something like a game-changing security breach or data center failure to curb the growth of the public cloud at this point.

In its base case, the firm says the overall market opportunity for the public cloud could grow to $340 billion by 2020, up from $300 billion today. By comparison, they say, there is a $1.6 trillion global market for electricity today.

If Morgan Stanley’s bull case becomes a reality, the impact on Microsoft, Amazon and other major cloud players would be significant. For example, Microsoft’s cloud valuation would increase by 50 percent from the base case, driving a 20 percent increase in the company’s overall stock in this scenario, the analysts estimate. Under the bull case, the valuation of AWS would jump by 18 percent from the base case scenario.

“If public cloud is a transformational technology like electricity, usage broadens and workload growth accelerates (our bull case), implying cloud stocks are widely undervalued today,” the analysts write.

In addition, Morgan Stanley says it believes IBM’s cloud is undervalued by investors, even in the more conservative base case. The firm recently raised its price target for IBM to $212/share based on its cloud efforts and cognitive services such as Watson and Blockchain. IBM is currently trading under $174/share. The company announced a series of new cloud initiatives at its InterConnect conference last week.

But the notion of the public cloud as a “utility” could also raise challenges for these providers, as outlined by The Economist in a special report on Amazon — predicting that the tech giant could face more regulatory scrutiny as its clout expands.

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