Cloud computing stocks and ETFs are on torrid paces, a theme applicable to one of the newer members of the group: the WisdomTree Cloud Computing ETF (WCLD).
The WisdomTree Cloud Computing Fund seeks to track the price and yield performance, before fees and expenses, of the BVP Nasdaq Emerging Cloud Index, an equally weighted index designed to measure the performance of emerging public companies focused on delivering cloud-based software to customers.
Cloud computing is the ability to deliver enterprise-level solutions on demand, through a simple internet connection. The “cloud” refers to the aggregation of information online that can be accessed from anywhere, on any device. Cloud companies provide on-demand services to a centralized pool of information technology (IT) resources via a network connection.
“The cloud computing industry has experienced strong growth but may have hardly penetrated its total addressable market,” said WisdomTree in a recent note. “BVP believes all businesses must undergo a digital transformation, especially amid the current health crisis. BVP expects cloud computing to become the underlying connectivity source for our entire $88 trillion global economy.”
Walking in the Clouds
Cloud computing represents a significant source of disruption not only in the technology sector but in the investment world as well. It has become ingrained in nearly every aspect of our lives by fundamentally altering how we consume, process, and share information in the digital age. The trend toward cloud-based solutions offers a compelling, long-term opportunity for investors to gain exposure to a quickly developing segment of the technology sector.
“The cloud computing industry generated more than $200 billion in annual revenue in 2019. Cloud computing segments are driving profitable growth for tech giants operating multiple lines of business,” according to WisdomTree. “Today, cloud software accounts for approximately 30% of the overall software market. By 2030, BVP anticipates cloud will account for 83% of the software market.”
Also of note is high client retention with longer revenue periods, where cloud software becomes embedded in client workflow, resulting in higher switching costs and client retention. Many clients prefer the pay-as-you-go transaction model, which can lead to longer periods of recurring revenue as upselling product enhancements do not require an additional sales cycle.
“Business-to-business (B2B) commerce has been largely executed offline through intermediaries (e.g., payment via check). BVP predicts cloud companies will offer solutions to digitize and drive efficiencies in B2B workflows, which represents a $100 trillion market opportunity,” notes WisdomTree.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.