Up 33.49% year-to-date, the Global X Cloud Computing ETF (Nasdaq: CLOU) underscores just how hot cloud computing stocks. Some of that run is being fueled by the COVID-19 shift to working from home, but analysts see positive, longer-ranging implications for cloud computing names.
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.
“We identify companies that not only benefit from COVID shifts in budgets and customer demand, but can sustain the benefit long term amid accelerated digital transformations, large addressable markets, superior technology/competitive moat, and strong customer economics,” Kash Rangan, research analyst at Bank of America, said in a note.
Calling on CLOU
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.
Home to nearly $749 million in assets under management, CLOUD has one of the largest weights among all ETFs to high-flying Zoom (NASDAQ: ZM), one of the prime beneficiaries of the work from home trend.
“Zoom is a company that has succeeded in video communications, a segment of the market that is complex and difficult to figure out,” the Bank of America analyst said.
Zoom accounts for nearly 6% of CLOU’s weight. Bank of America has a $260 price target on the stock and a $235 price forecast on Twilio (NYSE: TWLO), CLOU’s largest holding at 6.25%.
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. Investors have added nearly $151 million to CLOU this year.
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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.