Amazon.com Resists the Cloud Fizzle

NEW YORK (TheStreet) -- We all remember the booms that bust. The housing bust. The dot-bomb. They mark the end of an economic cycle and the start of hard times for all.

But most booms just fizzle. In technology, new concepts get absorbed into the mainstream and the leaders of the bleeding edge just fall to Earth. Silicon Graphics was a big name during the 1980s but fell to its demise in the 1990s, because change is always a moving target.

So it is with cloud. Cloud is a big change.

Virtualization frees software from the bounds of its operating system. Distributed computing lets a single Web site run across the entire data center. It opens the way to careful analysis of huge data sets that once took years to plow through. It turns commodity hardware and open-source software into the most powerful systems the world has ever known.

But as 2012 has gone on, many cloud leaders have slowly come to Earth. VMWare(VMW) is still growing and still has margins approaching 25%, but its shares are up just 10% this year, and its price-to-earnings ratio has fallen to "only" 51.

EMC(EMC) , which owns 80% of VMWare, is also well off its March highs and trades at a P/E of 22.

The same is true across the space. It's not a crash, just a gradual falling to Earth. Rackspace Hosting(RAX) has barely budged this year, and its P/E has fallen to 73. Google(GOOG) is still Google, but it's down 10% on the year, and its P/E is down to 17.6 from 22.

But one cloud stock has stubbornly resisted gravity: Amazon.com(AMZN) . Its P/E is an astronomical 184, and it's up 30% so far this year. Its margins remain wafer-thin, with earnings of $130 million on sales of $13.185 billion for the quarter ending in March.

Why?

The most obvious answer is top-line growth. Annual sales have doubled from $24 billion to $48 billion in two years. Dominance in the e-tailing niche is something folks think it's worth paying for, even if the percentage of sales hitting the net income line is one-third that of WalMart(WMT) .

But the real answer is cloud dominance. Despite big efforts by companies such as Google, Microsoft(MSFT) and Rackspace Hosting, Amazon practically defines the public cloud. The Amazon Web Services (AWS) Application Program Interface (API) is both proprietary and an industry standard.