10 cloud tech stocks to watch

Cloud computing is the category of businesses that contribute to the delivery of services over the internet, or ‘the cloud’. Although there are the titans of cloud computing stocks – Amazon, Google and Microsoft – there are also plenty of alternative cloud tech stocks to watch as well.

Amazon
Source: Bloomberg

What is cloud computing?

Cloud computing is the practice of accessing computer resources remotely – usually via the internet. For example, to gain additional processing power, data storage, software or other applications. The term covers a multitude of on-demand computing services, which can span customer services as well as business-centric services. It is common for businesses to rent access to cloud computing systems from a third party, rather than owning and managing their own computing infrastructure. For example, Netflix (NFLX) relies on cloud computing to run its video streaming service.

The rise of cloud computing

The parameters of cloud technology are constantly changing as more ways to utilise the internet are found – this has resulted in more cloud companies and a vast amount of revenue growth. It has been predicted that by the end of 2018 the public cloud market could reach a value of $178 billion and continue to grow at an annual rate of 22%.1

The expansion of the cloud computing industry is largely due to the fact that so many businesses and consumers rely on the services of cloud tech companies.

Top 10 cloud stocks

Cloud computing stocks offer traders a variety of opportunities to speculate on the future of this growing industry. In terms of the progress of the company, year-on-year (YoY) growth and share price valuations, some of the best cloud stocks to trade are:

Akamai

Akamai Technologies Inc (AKAM) is a content delivery service that brings website content creators and users closer together through a worldwide network of servers. Companies can use Akamai to provide news sites, videos and other content to consumers, instead of managing their own in-house servers.

After the dot-com bubble burst in 2000, Akamai stock fell as low as $2 per share. Since then, AKAM has risen steadily and remained trading in the $45 to $81 range. Despite not releasing any large company announcements or plans, the company’s share price rose by over 41% from October 2017 to October 2018. This can largely be attributed to revenue growth predictions of 27% by the end of 2018 and a further 13% in 2019.2

 

 

Amazon

Amazon Web Services (AWS), the cloud platform section of internet giant Amazon (AMZN), is seen as one of the pioneers of the cloud computing trend. AWS offers a wide variety of cloud computing services including scalable storage, content delivery, streaming and customer engagement services, among many others.

It is difficult to establish the exact impact of this on AMZN stock prices because there are so many other elements of the business that contribute toward its valuation. However, as many of these other areas have experienced the same amount of success, Amazon’s share price rose above $2000 for the first time in August 2018.

Cisco

Cisco Systems (CSCO) develops, manufactures and sells networking hardware, telecommunications equipment and other high-tech services. Cisco benefitted from increased investment during the dot-com bubble and, despite the subsequent crash, it successfully positioned itself as integral to internet service providers.

Although Cisco is often regarded as a more traditional company, it solidified its position in cloud tech after it acquired the cloud software company BroadSoft in October 2017. CSCO shares gained 45% between October 2017 and October 2018, spurred on by confidence in revenue growth projections of 15% in 2018, and a further 9% in 2019.3

Equinix

Equinix (EQIX) is a real estate investment trust (REIT) because it manages a global network of data centres. However, because these centres store private cloud servers and devices, Equinix is also classified as a cloud computing stock.

Equinix has positioned itself as a middle man in the cloud computing industry, which has caused the company to experience impressive growth – its share price has risen from $7.60 a share in 2003 to $431 in October 2017.

F5 Networks

F5 Networks (FFIV) delivers the cloud itself, focusing on the applications, security, performance and availability of servers and other cloud resources.

Interest in F5 Networks has surged dramatically in recent years due to the growing interest in cloud computing, and the price performance of its shares. F5 Networks closed above $199 in October 2018, up 74% from November 2017’s price of $114. The company is predicted to continue growing, with a YoY revenue growth forecast of 14% for 2018 and a further 9% by the end of 2019.4

Google

The Google Cloud Platform (GCP) is a collection of cloud computing services, which Google uses internally for Google Search and YouTube, and supplies to companies and individuals.

GCP is one of the leading cloud computing platforms on the public market today, but it is still behind Amazon Web Services and Microsoft Azure. Google’s parent company Alphabet (GOOGL) announced that GCP revenue had surpassed $1 billion per quarter in February 2018, which saw shares of GOOGL rise 7% in the following two weeks.

However, the income from this cloud unit represents just 3% of Alphabet’s total earnings. Like Amazon, a large portion of Alphabet’s revenue comes from a range of different businesses – notably Google’s advertising arm – so it is important to remain aware of the successes and failures of these other sections for an accurate Google stock forecast.

Intuit

Intuit Inc (INTU) provides cloud-based tax preparation and accounting software that is commonly used by individuals and small companies. The company was founded on the principle that paper-and-pencil accounting would become outdated, and Intuit’s growth over the past decade shows that the founders’ forecast was correct.

INTU stock has seen an increase in price of over 1000% – from $2 per share in 1993 to over $227 in 2018. With a revenue growth forecast of 15% for the end of 2018 and another 13% expected next year, Intuit is continuing to pique market interest.5

Microsoft

Microsoft (MSFT) is another large player in the market, with a range of cloud computing services, including the Azure platform and the cloud-based Office 365 software suite. The use of Microsoft Azure by companies has increased significantly over the past few years and led to the company taking a 17% share in the public cloud market.

The success of Microsoft is also due to its constant exploration of new technologies, which led to a deal with Volkswagen in September 2018 that will see the company connect cars to the cloud.

The focus on cloud computing has seen the MSFT share price increase by 45% between October 2017 and October 2018. Microsoft is predicted to continue its expansion, with a revenue growth forecast of 10% by the end of 2018 and 15% in 2019.6

Combined, Amazon, Google and Microsoft are expected to capture 76% of the public cloud market by the end of 2018.

Salesforce.com

Salesforce.com (CRM) was at the forefront of the cloud computing revolution and the ‘software as a service’ trend. The majority of Salesforce’s revenue comes from a customer relationship management platform, which is used as a standard across a range of industries. The cloud platform helps companies better understand their customers with a range of tools for marketing, e-commerce, community management and analytics.

In June 2018, Salesforce.com announced another above-expectation earnings report to add to their three-year streak – the quarterly revenue of £3.01 billion exceeded analysts’ forecasts by over $70 million. On the back of the revenue growth, shares of CRM gained almost 60% between September 2017 and September 2018, and this growth is only predicted to continue into 2019.

VMware

VMware (VMW) is a provider of cloud computing and platform software that offers security and data management tools to other cloud networks. In 2004, it was acquired by Dell EMC, and has seen a vast amount of growth ever since, aided by its connections to both Amazon and Microsoft.

Shares of VMW rose by over 97% after VMware and Amazon announced their strategic alliance in October 2016. The history of VMware’s revenue growth continues to impress markets, with over 17 consecutive positive quarters and a growth rate forecast of 7.3% in 2019.

Cloud computing ETFs

Another way to gain exposure to the industry is through cloud computing exchange traded funds (ETFs), which track a basket of cloud stocks.

In 2017, the First Trust Cloud Computing ETF (SKYY) was created to hold 30 stocks in the cloud business, including all of the above companies, as well as Facebook, Adobe Systems and Oracle Corp.

This means that trading SKYY can be a great opportunity to take a position on the movements of the entire sector, rather than an individual company.

Sources

1 Forbes, 2018

2 Yahoo Finance, 2018

3 Yahoo Finance, 2018

4 Yahoo Finance, 2018

5 Yahoo Finance, 2018

6 Yahoo Finance, 2018

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