For the past couple of years, cloud computing has evolved into a flourishing segment of the tech space. The significant opportunities in the sector have attracted many companies to build out cloud infrastructure and establish themselves as leading service providers.
Before getting into the growth prospects, it might be helpful to understand what exactly cloud computing represents.
Cloud computing consists of the entire gamut of computing intelligence required to carry out day-to-day operations by companies and professionals. This means that other than the hardware, which could be in any shape or form, all the supporting technology involved in creating, storing, retrieving, transporting, protecting, sorting, processing, analyzing and presenting information from multiple sources and formats, which when available from a shared (private) or public pool, could be referred to as cloud computing.
Cloud service providers therefore help organizations store data and applications remotely in this pool, which can then be accessed from anywhere and at anytime via the Internet. Therefore, users have access to their files wherever and on whatever device they may be using. This process is gaining traction as it can significantly cut IT costs for companies by removing expensive servers and trimming maintenance staff.
Cloud Prospects
Initially used in telephony schematics to hide irrelevant details, the cloud symbol now represents the Internet in computing diagrams. The fundamental notion of cloud computing dates as far back as 1950, but it was in 2006 that the term was popularized by Amazon.com Inc. AMZN.
The exponential growth in the amount of data, complexity of data formats and the need to scale resources at regular intervals compelled several companies to turn to cloud computing vendors.
There is also an ongoing revolution in the way people use devices and communicate with each other, which is leading to the proliferation of mobile devices by consumers. The convenience and accessibility afforded by mobile is also driving employers across many sectors to move toward the Bring-Your-Own-Device (“BYOD”) policy. However, the nature of work differs across organizations and broader adoption of the policy can only be possible through cloud resources.
Further, given the scope and advantages (cost, scaling, convenience, etc.), it’s not surprising that the demand for cloud computing software and applications is on the rise. Cloud vendors usually offer the infrastructure or other technology as a service, which further lowers costs for adopters.
According to Centaur Partners, Software-as-a-Service (SaaS) and cloud-based business applications are likely to grow from $13.5 billion in 2013 to $32.8 billion in 2016, reflecting a compounded annual growth rate (CAGR) of 19.5%. Moreover, Computerworld forecasts that 42% of IT decision makers are planning to increase spending on cloud computing in 2015.
Another research firm, IDC projected last year that public IT cloud services spending will grow at a five-year CAGR of 22.8% to over $127 billion in 2018. The growth rate is six times that of the broader IT market. In 2018, public IT cloud services will make up more than 50% of the global software and storage development.
Companies Are Building Cloud Capabilities
One thing is for certain, cloud computing will continue to evolve over the next few years as demand surges. In fact, almost all the companies will be moving to the cloud in one way or the other. It would therefore be more advantageous for leading vendors to collaborate or even merge their capabilities to capture a larger share of the pie.
Over the past couple of years, various cloud vendors have been aggressively investing in enhancing their capabilities. In this regard, in October, Dell Inc. made a deal to acquire EMC Corp. EMC worth a record amount of $67 billion. The combined entity will be the world’s largest privately controlled, integrated technology company. Through this deal, Dell primarily intends to retain its relevance as the computing world moves to cloud services and storage.
Furthermore, cloud vendors are eyeing the opportunities in Europe which has become the fastest adopting cloud services region over the past one year. In October, salesforce.com Inc. CRM announced its plans to invest $100 million specifically in European start-ups.
Apart from this, Alphabet Inc. GOOGL and Cisco Systems Inc. CSCO are stepping up their venture activity in Europe.
In the same month, Cisco increased its investment in France to $226 million from $113 million to boost cloud capabilities. Moreover, last year, Alphabet had announced its plan to form a group of five general partners dedicated to look for investment opportunities in the continent.
International Data Corp.’s (“IDC”) report on European Public Cloud Services supports the aforementioned companies’ decision as “Europe's public cloud software market will grow almost 12 times faster than other IT segments to reach €33.3 billion by 2019.”
4 Cloud Stocks Poised to Grow
The cloud computing space has several promising stocks to choose from. Here are a few interesting long-term investment options for those interested in the space.
With the help of our new style score system, we short-listed stocks that hold immense growth potential. Our Growth Style Score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth. Our research shows that stocks with Growth Style Scores of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best investment opportunities in the growth investing space.
salesforcre.com Inc.
Salesforce is the top CRM (customer relationship management) vendor in the SaaS enterprise application market. The world’s leading on-demand CRM platform provider was the first to sign up large customer accounts, which helped it to build a solid market position. According to Gartner, global spending for enterprise software will increase 7.3% year over year to $344.0 billion in 2015.
The key markets expected to benefit from this spending are security, storage management and CRM and Salesforce is well-positioned to capitalize on this. Also, the company’s cloud partnership with rivals Oracle Corp. ORCL, Hewlett-Packard Enterprise Co. HPE and Microsoft Corp. MSFT will boost the portfolio and the resultant synergies should drive long-term growth.
Salesforce has a Zacks Rank #2 and a long-term expected earnings growth rate of 26.2%, significantly higher than the industry average of 14.4%. The company has a Growth Style Score of ‘B.’
Amazon.com Inc.
The e-Commerce giant has emerged as a key player in the cloud computing space with its Amazon Web Services (AWS). Revenues from the AWS segment have been growing strongly and crossed the $5 billion mark over the trailing 12 months. Even more encouraging is the fact that AWS generates much stronger margins than the traditional retail business, which should help the company’s profitability, going forward.
The Zacks Rank #2 stock has a Growth Style Score of ‘A’ and long-term expected earnings growth rate of 35.6%, much higher than the industry average of 16.1%.
NetSuite Inc. N
NetSuite is the leading provider of on-demand, integrated business management software for growing and mid-size businesses. The company has thousands of customers globally, using its online products and professional services to manage all key business operations in a single hosted system These services include customer relationship management; order fulfillment; inventory; accounting and finance, product assembly; ecommerce; Web site management; and employee productivity.
NetSuite carries a Zacks Rank #2 with a long-term expected earnings growth rate of 21.1% which is significantly higher than the industry average of 14.4%. The company has a Growth Style Score of ‘B.’
Brightcove Inc. BCOV
Brightcove provides cloud content services to publishing and distributing professional digital media. Its products include Brightcove Video Cloud, an online video platform and Brightcove App Cloud, a software application development and management platform. The company’s solutions are used by media, retail, technology, financial services companies, governments, educational institutions, and non-profit organizations in North America Europe, and the Asia Pacific.
Brightcove sports a Zacks Rank #1 with a long-term expected earnings growth rate of 15.0%, higher than the industry average of 14.4%. The company has a Growth Style Score of ‘A.’
Conclusion
Cloud computing has always been about scale, though earlier, it was limited to companies expanding the infrastructure to cut prices and expand capacity. Now, it appears that cloud computing is entering a new phase where the focus has shifted to product offerings and those with the widest range will win. Therefore, companies are aggressively investing to enhance their cloud capabilities and achieve long-term goals.
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