Investing in Cloud Computing Companies

Separating Hype from Opportunity

Investing in Cloud Computing Companies
July 10, 2014

Over the past few years, cloud computing has emerged as a hot new technology trend as more and more companies move to the use of on-demand computing resources located on the Internet — or “in the cloud” — instead of on their physical premises. This has caused a lot of buzz about opportunities to invest in cutting-edge cloud computing companies.

Investment Challenges

One of the biggest challenges for individuals who are interested in investing in cloud computing is understanding the concept itself. The term “cloud computing” actually encompasses several different things, including:

  • Computing infrastructure, platforms and networking via massive “server farms”
  • Software as a Service, also known as SaaS
  • Online data storage, consolidation and back-up services

Therefore, the first step to investing in cloud computing companies is to determine which type of company you believe offers the best opportunity for a high return on investment.

Some investment analysts believe the data storage and back-up components of cloud computing offer the least ROI potential, since data storage is really just a commodity. These analysts believe that data storage providers will ultimately lower their prices or raise their storage caps until storage becomes a breakeven service offering, or even a loss leader to try to encourage customers to buy premium services or extra storage space.

Potential Opportunities

There is a wide range of potentially high ROI investment opportunities today within the computer infrastructure, networking and SaaS components of cloud computing. Today’s technology giants — Google, Amazon, Microsoft, Cisco, Oracle and IBM, to name just a few — are all involved in these components of cloud computing in one way or another. In addition, there are many smaller, but substantial, companies that are carving out cloud computing niches for themselves that may also represent attractive investment opportunities, including:

  • Salesforce.com (NYSE:CRM) — Provides software that helps corporate sales teams track leads and sales and share sales information internally.

  • VMware (NYSE:VMW) — Provides infrastructure software to cloud computing services providers.

  • EMC Corp. (NYSE:EMC)— Provides storage devices and security software to cloud computing services providers.

  • Akamai Technologies (NASDAQ:AKAM) — Provides a secure, intelligent cloud platform to businesses that want to move their computing resources to the cloud.

  • Netsuite (NYSE:N) — Provides a cloud-based suite of business management software to companies, including enterprise resource planning (ERP), customer relationship management (CRM), professional services automation (PSA) and ecommerce applications.

As with any investment opportunity, you should conduct thorough research into any cloud computing companies you might be thinking about buying. In the end, the fundamentals of sound investing apply to cloud computing companies just as they do to any other type of business.

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