What Tech Investors Should Know About Cloud Stocks

cloud stocks
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It’s amazing how many types of stocks, hedge funds, and investment vehicles there are on the market today. There are so many different types that it can be an awful lot to sort through.

One kind of stock has been recently catching more attention of those who pay attention to less mainstream investments and niche stock sectors is a type of stock referred to as a "cloud stock."

We’ll go into different types of cloud stocks and different cloud stock companies in this article, but first, let’s take a look at what the cloud is.

What Is the Cloud?

Up until the internet age, a cloud was simply those white—and sometimes gray or black—things floating in the sky. Clouds can still refer to those objects in the sky but “the cloud” can also refer to the way data is stored in the internet age. This is the “the cloud” that is related to computing or data centers that manage the data that is distributed on the internet and the devices that do the distribution. You can invest in companies that operate the cloud, provide services on the cloud, or own the cloud.

 These are the three basic types of cloud stocks to look at.

The Three Basic Types of Cloud Stock

Cloud Maintainers

These are companies that serve the cloud and help make it run. They supply the software, the hardware, and services needed to keep the cloud going. Companies like Dell Technologies and Intel are part of this group.

Cloud Czars

These are the companies and individuals that handle large chunks of the power of the internet. They own the biggest data centers and control the flow of information across the cloud. These include companies like Facebook, Alphabet (Google's parent company), Apple, Amazon.com, and Microsoft.

Cloud Service Companies

Cloud service companies are the major players delivering information and services across the internet – often they are offering services that weren’t possible before the internet developed, or have migrated their services to be internet based. Salesforce.com and Netflix.com are examples of web-based businesses that rely on the cloud for their primary business model.

What to Know About Trends in Cloud Stock

Right now the Cloud Czars hold the most power and are facing a potential break-up or additional regulation by government agencies. You could see this playing out in years ahead as both Google and Facebook executives were brought in to testify before Congress. Additional regulation and the potential threat of company breakups means that these cloud stocks very well may be facing prices that aren’t growing at the pace they used to grow.

Cloud service companies and cloud maintainers aren’t facing the same kind of scrutiny that the giant cloud czars are and have the potential to produce better returns, but as always it’s important to look at the fundamentals of any company before investing.

Cloud Stocks to Watch

While you can always invest in the popular big name Cloud Czars, there are several other companies to consider as well. Here are three that are worth keeping your eye on.

Adobe Systems

Adobe is the maker of the famous Photoshop software and a suite of other design products like Illustrator. And although they once only sold physical copies of their software, they now exclusively sell online through digital downloads. By committing to the cloud model for their business Adobe has seen tremendous growth with their stock up over 400 percent in five years. And best of all, not selling physical goods means their profits are way up—from 5 percent to 25 percent.

Autodesk

This is an exciting company to watch. They are the creators of the AutoCAD software and have made the switch from physical software packages to selling software as a service via the cloud. This process has been difficult for Autodesk, they had layoffs and reduced their workforce by 1,150 positions. But since 2017 they have been moving back into profit.

Red Hat

Red Hat is the maker of the Linux operating system and they have a unique business model offering open source software. The way they make money is by offering a supported version of the Linux software called Red Hat Enterprise Linux. This gives them a solid 10 percent profit margin and has doubled their revenues since 2013.

The Bottom Line on Cloud Stocks

Overall, investing in the cloud—or companies that run, supply, or have business models on the internet can be a lucrative opportunity. It’s important to consider the business model and growth potential of any company you invest in and to be aware that while you can make money it is also possible to lose money. So, do your diligence before making an investment decision.