Cloud Calling Makes This ETF an Interesting Tech Rebound Idea

Technology has held up well on a relative basis as markets are tanking this year and tech departments still need to spend on cloud products, scenarios that could prop up the Global X Cloud Computing ETF (Nasdaq: CLOU) going forward.

The $395 million CLOUD, which tracks the Indxx Global Cloud Computing Index, turns a year old later this month and is positioned to capitalize on a growing industry.

The cloud computing industry refers to companies that (i) license and deliver software over the internet on a subscription basis (SaaS), (ii) provide a platform for creating software applications which are delivered over the internet (PaaS), (iii) provide virtualized computing infrastructure over the internet (IaaS), (iv) own and manage facilities customers use to store data and servers, including data center Real Estate Investment Trusts (REITs), and/or (v) manufacture or distribution infrastructure and/or hardware components used in cloud and edge computing activities.

The public cloud is viewed as an important driver of cloud computing growth in the coming years.

“Public cloud service providers, or hyper scalers, offer on-demand data storage and processing,” said Global X analyst Andrew Little in a recent note. “These services are centralized in shared data centers and accessed via the internet. In the IaaS business model, enterprises and individuals typically pay cloud providers on a recurring basis, with costs determined by the services subscribed to and the volume of usage.”

CLOU Connections

The increasingly digital and connected world that forms the backdrop for CLOU’s launch is exhibiting significant growth and is expected to continue to grow over the coming years. The cloud computing industry that was estimated to be worth $188 billion in 2018 is expected to be worth over $300 billion by 2022, a nearly 15% annualized growth rate. IaaS is a major contributor to that growth.

“Recently, hyperscalers’ growth outpaced that of other cloud segments: Gartner estimates that IaaS-based revenues grew 27.5% in 2019, ahead of the PaaS (21.8%) and SaaS (18.5%) segments,” notes Little. “Forecasts predict a similar growth trajectory, with IaaS revenues reaching $76B by 2022, up from $39B in 2019 representing a 25.3% CAGR.”

Declining costs in cloud adoption and increasing ease of use are among the factors driving the cloud computing boom. Several of CLOU’s marquee components have first-mover advantages in various cloud niches and are building attractive competitive moats in the space. CLOU’s IaaS exposure should beneficial to long-term investors.

“We expect the IaaS segment to be a battleground for hyperscalers in the coming years. Strategic acquisitions and hires should continue to tick upwards as these companies look to expand and differentiate their offerings and attract new business,” according to Global X.

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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.