The Cloud Computing ETF: An AI Proxy? | ETF Trends

AI investing was one of the biggest investing ideas in 2023. It looks set to potentially retain that momentum in 2024. AI got so big, however, it spread to all kinds of sectors. That benefited those sectors, to be sure, but in some cases, it may overshadow their own potential outside of AI. Cloud computing particularly saw its story overwritten by AI. In reality, a cloud computing ETF offers a different take on tech.

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Many investors and market watchers have conflated AI and cloud computing because of their place in tech. One can easily imagine how generative AI would make use of cloud computing processing power, for example. That doesn’t mean that cloud computing relies solely or even mostly on that trend.

A cloud computing ETF can theoretically include a variety of firms, from data center and infrastructure names to software names that specialize in designing cloud computing suites.

Cloud computing power comes from networking different programs and computers, providing analytics that are separate from AI analytics, for example. Cloud computing can interact with digital assets or even trends in quantum computing as much as, or more than, an AI theme.

With rate cuts potentially on the horizon, a cloud computing ETF could benefit. One such strategy is the Fidelity Cloud Computing ETF (FCLD). FCLD will hit its three-year ETF milestone this fall, charging a 39 basis point fee. The strategy tracks the Fidelity Cloud Computing Index, an adjusted market-cap-weighted index of global cloud computing firms.

In tracking that index, FCLD identifies firms generating at least 50% of revenue from cloud infrastructure, platforms, or software. Intriguingly, that approach has provided FCLD diversified exposure outside of the so-called “Magnificent Seven” for some of its highest-weighted holdings. With names like Salesforce (CRM) and Intuit (INTU) leading the way, the strategy has returned 37.4% over the last year and 20.1% over the last three months as of February 20th, per VettaFi data.

Taken together, while AI remains a popular theme and one that does contribute to cloud computing, cloud computing tech has also done well on its own terms, making FCLD appealing to curious investors.

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