Before the pandemic struck, cloud computing was simply a buzzword flying around corporate board rooms and Wall Street corner offices. Then as COVID-19 began to take hold across American and the world, many of us shifted to a work from home environment. We began to rely on “the cloud” more and more to facilitate our daily business operations and keep the economy humming.
This year, according to Forrester Research, the global public cloud computing infrastructure market is expected to grow 35% to $120 billion. The research firm had to revise its prior estimate of 28% growth for 2021, after taking into account the global trend to adopt cloud computing even faster in light of the “new environment.”
And that’s just the beginning. The worldwide proportion of IT spending on the cloud should climb 18% in 2021 to $304.9 billion, Gartner says. About 93% of enterprises surveyed in the Flexera 2020 State of the Cloud report already use some cloud service.
No doubt you’ve heard the term, but just what is cloud computing? Simply put, it’s on-demand access via the internet to computing resources. We’re talking everything from servers and apps to data storage, development tools, networking capabilities and more.
Cloud computing as we know it today started back in late 1996 in a Houston office park. According to the MIT Technology Review, a Compaq marketing executive and another technologist coined the term “cloud computing-enabled applications” for their idea that business software would eventually come to be stored on the internet.
Ever since, some of the most competitive technology companies on the planet have been vying for a slice of the multi-billion-dollar industry, including behemoth cloud providers like Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOGL).
The reality is that cloud computing can help lower IT costs, speed the time an organization needs to start using computing resources, and provide an easier, more cost-efficient way to scale computing capacity within a business.
Investors have taken note.
One of the sector’s bellwether ETFs, the WisdomTree Cloud Computing ETF (NASDAQ:WCLD), has gained 31.86% in the past six months, and 101% over the past year.
However, I’m not a huge fan of ETFs, as they’re often comprised of winners and losers in a given sector.
For example, the IT services company Pluralsight, Inc. (NASDAQ:PS), a stock that currently makes up 1.46% of the WisdomTree Cloud Computing ETF, is a “Hold” in my Portfolio Grader, earning a Total Grade of “C,” a Fundamental Grade of “C” and a Return on Equity grade of “F.”
Not the best report card at the moment. This is why I look for fundamentally superior stocks on a case-by-case basis.
My InvestorPlace colleague, Matt McCall, and I believe we’ve found even better ways to play the cloud. I’m talking about the kinds of picks and shovels companies that are using the cloud to ring in fundamentally superior sales and earnings.
In fact, we recommended several stocks taking advantage of the cloud in their business models in our Power Portfolio 2021 in December.
One is a leading provider of cloud software for business call centers. The company is on a mission to replace the old on-premise contact center systems with quickly deployable solutions that come with seamless upgrades.
The business’s solutions can also be integrated with a company’s customer relationship management (CRM) system and other business applications. Customers feel as though they are getting more personalized and more attentive service.
Over the last 10 years, the company’s revenue has grown at a strong 33% compound annual rate without a down year. This stellar consistency is just as evident in its quarterly revenue. Since 2012, the company has grown its top line quarter-over-quarter every time. And it has multiple avenues for growth — adding new customers, expanding existing relationships, and entering international markets, so we don’t expect that growth to slow anytime soon.
Another stock added more recently to our Power Portfolio 2021 is using the cloud to operate a residential real estate brokerage platform. This allows realtors to expand their business without the burden of brick-and-mortar offices and redundant staffing costs.
Over the last decade, the company’s network has grown to more than 36,000 real estate professionals throughout the U.S. and Canada. The platform is beneficial to agents as well, as they can get professional support and the infrastructure to run their businesses — including a full suite of back-office functions like paperless file sharing and transaction management.
The power of a cloud-based business model can be seen in the company’s profitability. Through mid-December, the company’s cash flow had already grown by more than 6X compared to the same period last year! And with record-low mortgage rates and lean home inventories, the outlook for the housing market is very bright.
Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owned the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Amazon (AMZN), Microsoft (MSFT) and Google (GOOGL)
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.