7 Ways for Anyone to Invest in the Cloud
The cloud is growing. To cut costs and boost computing power and storage, companies are increasingly turning to cloud computing to run their businesses. That bodes well for firms that build hardware, data center infrastructure companies, telecoms and computer software designers.
According to a survey released in December, growth equity and venture capital firm North Bridge and research firm Wikibon expect public cloud spending to soar from $75 billion in 2015 to $522 billion by 2026 at a compound annual growth rate of 19 percent.
“As the cloud ecosystem matures, users are turning to a broad spectrum of technology and integration companies to help unlock the potential of [the] cloud,” Wikibon analyst Stuart Miniman says in a statement accompanying the survey results.
Companies are increasingly turning to public clouds for applications that don’t require lots of security, says Raj Thangavelsamy, vice president at SSA & Co., a consulting firm in New York. In the public cloud, companies don’t have to have their own software and data communications goes through the public internet. Company data can be managed by a third party on off-site servers and accessed from anywhere with an internet connection.
Firms that were owning their own servers are shifting to the public cloud model where they don’t own the infrastructure but pay for what they use, says ARK Investment Management analyst James Wang. His company runs the Web x.0 exchange-traded fund (ticker: ARKW), which is 25 percent weighted to cloud computing and cybersecurity.
Outsourcing to the cloud makes sense for companies whose core focus is something other than managing data centers efficiently, Wang says. And it lowers their costs.
There are also private clouds that use data centers connected to private networks, and hybrid private-public clouds that access outside computing services but keep data within a company’s own data center firewall, Thangavelsamy says.
It’s the hybrid cloud that most companies, including banking and health care firms, will end up using, he says.
The North Bridge/Wikibon survey shows that the hybrid model remained the predominant cloud strategy for companies. It shows 47 percent of the companies surveyed used that form, versus 30 percent for public and 23 percent for private.
While the services that data centers and telecom companies provide will continue to grow, they will eventually become commoditized, Thangavelsamy says.
The downside for hardware makers is that the cloud allows more computing power from a fewer number of servers, meaning sales volumes will drop and the hardware makers will likely consolidate, Thangavelsamy says.
The part of the cloud ecosystem that could see the most growth is on the software side. “That’s where innovations will come from,” Thangavelsamy says. “That’s where bigger value will be created.”
Here’s a look at some of the major players in the cloud space:
Amazon.com (AMZN). From a market share standpoint, Amazon is No. 1 in offering cloud services, followed by Microsoft Corp. ( MSFT), says Morningstar analyst Abhinav Davuluri. Other companies in the data center business are Alphabet’s Google ( GOOGL, GOOG), International Business Machines Corp. ( IBM), Oracle Corp. ( ORCL) and SAP ( SAP).
salesforce.com (CRM). This software-as-a-service provider will benefit as more companies get their software needs from the cloud, Davuluri says. Those companies will be able to analyze customer data collected in apps better because of the power of salesforce.com technology, he says.
Microsoft. This tech behemoth has been doing well moving from traditional software to software as a service, Wang says. However, at least for a time, this is only replacement revenue for the company as revenue now coming from subscription software services downloaded from the internet was once coming from traditional software sold in boxes and installed via compact discs, for example, Wang notes.
Telecom companies. Thangavelsamy says telecom companies such as Centurylink ( CTL), AT&T ( T) and Verizon Communications ( VZ) that provide networking services are particularly well positioned to capture growth from the cloud.
Equinix (EQIX). This data center company will see growth in the private and hybrid cloud space, Thangavelsamy says. The company has the size to invest, innovate and compete, he says.
Intel Corp. (INTC). Intel is the prominent player on the hardware side, owning most of the market share of supply for central processing units, or CPUs, for data centers, Davuluri says. However, Qualcomm ( QCOM) is trying to take some of that share, and companies that purchase chips want that competition to bring prices down, he says.
Nvidia Corp. (NVDA). This company is in the accelerator chip business. Because growth in the speed of CPUs has not been accelerating at the pace it once did, there is growing interest in accelerator chips that help the main CPU do more work, Wang says. Nvidia’s revenue growth “is the most remarkable story in the chip business in the last five or 10 years,” Wang says.