Why Consider Investing in Cloud Stocks?

Certainly, there are plenty of options when it comes to tech investing. From the Internet of things, to startups, to blue-chip stocks like Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT), investors likely learn about something new every minute — and cloud stocks are no exception.
The rise of cloud computing is an important trend in tech investing. For the uninitiated, cloud based services allow data and applications to be accessed via the Internet and stored remotely via large data centers.
This encompasses things like software as a service (SaaS), infrastructure as a service (IaaS), platform as a service (PaaS) business intelligence and data storage. One common example of a cloud stock is Salesforce.com (NYSE:CRM), an online customer relationship management system. With that in mind, here the Investing News Network (INN) looks at how investing in cloud stocks may be the way to go.

Why invest?

While there are still some concerns over security, cloud computing is definitely here to stay. It allows businesses to save big on hardware and infrastructure costs while allowing easy access to information from anywhere with an internet connection – both key factors for quick moving industries.
To be sure, something that provides cost savings is nothing to shake a stick at when it comes to running a business, which explains why so many organizations continue to choose the cloud.
Though it’s been around for awhile now, the cloud computing industry is still rapidly growing. According to research from Gartner, the overall public cloud services market is expected to reach a whooping $411.4 billion by 2020–representing an 18.5 percent compound annual growth rate from $260.2 billion in 2017.
Most of the biggest tech stocks have made moves in the cloud computing space as well. Meanwhile, Nasdaq reported in early 2015 that IBM (NYSE:IBM) was stepping up its efforts to get a piece of the cloud computing market after cloud stock revenues increased 60 percent year-over-year for 2014. Now, IBM’s cloud services range from cloud managed services, cloud for SAP, cloud for Oracle, cloud managed security services, and cloud managed services for System z.
Other giants such as Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL) and Microsoft are all “pouring billions of dollars into data centers, equipment and software to expand their cloud-services businesses,” the Wall Street Journal noted. In 2016 alone, for example, Amazon’s cloud computing reached $12 billion in revenue and $3 billion in profit. As of Q3 2017, Amazon’s cloud revenue had climbed 42 percent to reach $4.58 billion.

Investment options

There are a number of different ways to invest in cloud stocks. The first and most obvious choice would be companies offering software as a service, as this is the largest cloud-based sector.
However, Investopedia lists several other ways to gain exposure to the sector, including investing in companies like Websense that offer cloud-based security solutions, or investing in companies like Dropbox that offer online storage. Taking it a step further, companies like VMware offer virtualization technology.
In addition, investing in cloud computing ETFs is another way to go–especially for investors who are interested in a commodity or market as a whole, rather than a single company.  That said, according to ETFdb.com, there is currently only one cloud computing ETF: the First Trust ISE Cloud Computing Index Fund (BMV:SKYY), incepted on July 6, 2011. The fund currently tracks 30 holdings, including cloud giants such as: Open Text (NASDAQ:OTEX), VMware (NYSE:VMW), Cisco Systems (NASDAQ:CSCO), and Juniper Networks (NYSE:JNPR) to name a few.
Finally, investors interested in the cloud can also look at investing in the infrastructure needed to run the cloud – centralized data centers.
As mentioned above, a number of tech heavyweights are continually increasing their investment in in building new data centers and expanding their footprint in the cloud computing market.
In any case, it’s clear to see that the overall cloud stocks sector is only growing, and anyone looking to invest in new technology may just want to keep an eye on things in this space.
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This is an update to an article originally published in 2015.
Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.