Just like the overall broader tech market, cloud computing took a hit in 2022 amid inflation fears, but as the space continues to rebound in 2023, short-term obstacles could provide opportunities for traders such as the latest probe by Ofcom, the U.K.’s communications regulator.
A Financial Times story noted that the regulator is looking specifically at Amazon and Microsoft, which constitute the two biggest players in the cloud computing industry. The probe on these two names is substantiated, given that they comprise between 60%–70% of the market share in cloud computing, according to the Financial Times.
More specifically, Ofcom is looking at the business practices of Amazon and Microsoft. The move is eerily familiar to China’s regulatory scrutiny of retail internet giants that helped to slow the second-largest economy down over the past couple of years.
“Last year, Microsoft changed its cloud licensing policies in Europe an effort to head off potential antitrust action from regulators in Brussels,” the Financial Times reported.
As mentioned by FT, the move comes amid cloud computing revenues falling as of late. The ISE CTA Cloud Computing Index is down 29% over the past year, but up almost 12% this year as tech looks to make a comeback.
“We’ve . . . uncovered some concerning practices, including by some of the biggest tech firms in the world,” said Fergal Farragher, the Ofcom director responsible for the market study. “High barriers to switching are already harming competition in what is a fast-growing market. We think more in-depth scrutiny is needed.”
Get Bearish on the Cloud
The probe could make for a potentially bearish move in cloud computing, which opens an opportunity for the Direxion Daily Cloud Computing Bear 2X Shares (CLDS). CLDS seeks 200% of the inverse (or opposite) of the daily performance of the Indxx USA Cloud Computing Index, and invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse (opposite) or short leveraged exposure to the index equal to at least 80% of the fund’s net assets (plus borrowing for investment purposes).
Like all leveraged ETFs, these Direxion products are intended only for investors with an in-depth understanding of the risks associated with seeking leveraged investment results, and who plan to actively monitor and manage their positions. There is no guarantee that these funds will meet their objectives.
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