27 Dec 2022
Cloud computing offers a frontier of investment opportunities as companies in cloud-based software, hardware, data, and more strive to create solutions for the next big thing.
The sky’s the limit for the cloud computing sector, with demand for cloud services skyrocketing—and pulling opportunities for the growth-minded investor into play.
In 2020, COVID-19 stopped businesses and communities in their tracks. Yet lockdowns around the world couldn’t stop workers, teachers and students, and families and communities from collaborating, studying, shopping, conducting business, and reconnecting—thanks to the many novel cloud-based solutions that now seem part of everyday life.
Nowadays, cloud computing is the default solution for many, with consumers giving a thumbs-up to businesses who invest in cloud-based technologies to improve services and products. Long-term predictions anticipate companies spending on cloud computing and infrastructure to reach $118.8 billion in 2025, a full 67 percent of the total - compare that to the amount companies will spend on infrastructure that isn’t related to the cloud, only $58.6 billion (1).
Whether email, software, data storage and backup, audio and video subscriptions, or more—cloud computing has touched upon every part of life, and will continue to transform how we interact into the future.
The “cloud” is a network of remote systems around the world that can be accessed by private networks or the shared internet.
Based “in” the cloud, cloud computing itself is more like an ecosystem of 3 services than a specific product.
From SaaS and IaaS to PaaS, moving to the cloud allows companies to rethink and redefine processes. This migration can boost momentum toward change—and profits. However, there are challenges ahead for businesses, as well as investors looking for profitable companies to invest in.
Investors who look for next-gen solutions are likely to find exciting investments in the cloud computing sector. Take for example, Spotify’s success story. In 2015 at its IPO, Shopify was valued at $1.27 billion. In 2020, it was valued at $127 billion (2). Founded by Tobias Lütke and Scott Lake, Shopify started as an online store in 2004 to sell snowboards when they couldn’t find a platform that worked well for them. Now, its e-commerce platform is used by individual sellers and big companies like Google.
For investors with a lower risk tolerance, large-cap giants like Microsoft and Adobe have already been integrating cloud-based solutions. For those with their eye on the long-term horizon and can handle more risk, startups like Snowflake are disrupting the industry by allowing businesses to have more control over the data and infrastructure they need. Investors can track the performance of these stocks over time as well as mutual funds and ETFs that include a diverse array of cloud-computing-focused holdings (3).
Before investing in a cloud upgrade, companies weigh the pros (access) and cons (cost) of cloud computing. These arguments for and against that are worth noting for an investor interested in the sector.
The cons of cloud computing
As challenges get addressed by the next wave of startups and technologies, cloud computing—SaaS, IaaS, and PaaS—will continue to transform how businesses operate, as well as how shoppers shop, how people listen to their favorite artists, and how people connect with loved ones. There are risks involved that every investor should be aware of but the future will be cloudy—meaning filled with cloud-based technologies.
In an industry as large and diverse as cloud computing, picking winners and losers can be challenging. However, there are a number of ETFs and mutual funds that focus on cloud computing companies and even the different types of solutions. A search on Magnifi suggests that there are many of these funds available to choose from:
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This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. Investors should carefully consider the investment objectives and risks as well as charges and expenses of all innovation-related securities before investing. Read the prospectus carefully before investing. ETFs and mutual funds are actively managed and there is no guarantee that the manager’s investment decisions will produce the desired results. All investments involve risks, including possible loss of principal. ETFs trade like stocks, fluctuate in market value and may trade at prices above or below their net asset value. Brokerage commissions and fund expenses will reduce returns. You should carefully consider a fund’s investment goals, risks, charges and expenses before investing. Download a summary prospectus and/or prospectus, which contains this and other information and read it before you invest or send money.