One of the hottest trends in tech is the cloud. This type of technology allows businesses to access applications via the Internet, which stores corporate information in data centers. This tends to lower the costs since there is no need to hire consultants or buy servers and other equipment.
For investors, the cloud certainly has been a great area to make money. Here’s a rundown for last year’s performance:
Many of these companies continue to grow at hefty rates — and even generate cash flows. However, a big driver for the valuations has been mergers & acquisitions activity. Last year, Oracle (NASDAQ:ORCL) shelled out $1.5 billion for RightNow (NASDAQ:RNOW) and SAP (NYSE:SAP) paid a whopping $3.4 billion for SuccessFactors (NASDAQ:SFSF).
And the activity is likely to continue. Other major software vendors — like Microsoft (NASDAQ:MSFT) and IBM (NYSE:IBM) — also need to bolster their cloud offerings. Andrew “Flip” Filipowski, who runs cloud-based human resources software company SilkRoad, discussed this in a recent interview.
Yet things are far from perfect in the cloud. Competition is getting fierce, and macroeconomic uncertainty could put a crimp on things.
And something else: As seen with the chart above, the dominant player in the cloud, Salesforce.com (NYSE:CRM), has been a big laggard. Perhaps part of the reason is that it is too expensive for being buyout bait, so M&A excitement hasn’t propped up its shares. Or investors might just be worried that the company’s growth rate might start to taper off.
If so, it could mean some headwinds for the cloud space for 2012.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.