Who hasn’t used Zoom (ZM), either for work or to connect with friends and family, during the pandemic-induced lockdowns? The video communications company is a player in cloud computing, although it may not seem like it at first glance.
Zoom provides a cloud platform for video conferencing and webinars. During the pandemic it was installed 124.7 million times in Europe, up 2,670% compared with the previous year. Zoom was objectively one of the winners of the last year, with its share price peaking at $568.34 in October 2020.
Zoom is a good example of the benefits of cloud computing, but it also is an example of why investors in technology need to be careful. Since the height of the pandemic, the stock has been falling and is down more than 16% year-to-date. As workers return to the office the group is seen to be facing some headwinds, and its last earnings revealed that the growth experienced in the pandemic is diminishing.
Furthermore, investors are cooling a little on tech stocks as rising inflation is perceived as a potential risk for some of these businesses that have done so well through the pandemic.
But the volatility of a stock like Zoom does not take away from the long-term growth prospects of cloud computing as a whole, and the sector continues to offer investment opportunities. Famed investor Cathie Wood, for example, used the dip in Zoom’s share price as an opportunity to buy the stock for her two exchange-traded funds ARK Innovation and ARK Next Generation Internet.
The growth of the cloud
Cloud computing, which essentially enables businesses to store data remotely and access it instantly, was already a growing sector, with Amazon’s Web Services, for example, becoming the Amazon group’s most reliable source of income, making up 12% of its total revenue.
But the pandemic has highlighted the importance of the cloud for businesses to a greater extent. Cloud spending rose 37% to $29bn in the first quarter of 2020, according a PwC report. By the end of this year, worldwide end-user spending on public cloud services is expected to grow 23% to reach $332.3bn, according to Gartner.
Sid Nag, research vice president at Gartner, noted: “Emerging technologies such as containerisation, virtualisation and edge computing are becoming more mainstream and driving additional cloud spending. Simply put, the pandemic served as a multiplier for CIOs’ interest in the cloud.”
Types of services
There are a few different types of companies in the cloud space, including those that offer infrastructure as a service (IaaS), platform as a service (PaaS) and software as a service (SaaS).IaaS provides the infrastructure for the cloud such as servers. The leading players in this area also happen to be some of the biggest tech giants such as Amazon, Microsoft and Alphabet.
The PaaS companies also provide infrastructure, but also an operating system that users can develop and use to distribute their own applications. Microsoft, Amazon and Alphabet are again the leaders in this area, but there are also other businesses such as SAP, Salesforce and Twilio in this space.
Finally, SaaS providers are a favourite of investors as they have subscription-based models where they provide customers software on the cloud. Adobe, Slack and Cloudflare are examples of some in this area.
If you’re looking for smaller stocks that are in the cloud space, some examples include Essensys, Cerillion and Gamma Communications.
The easiest way to access a collection of a basket of these stocks though is through ETFs. There are several dedicated strategies such as Global X Cloud Computing ETF, WisdomTree Cloud Computing UCITS ETF, BetaShares Cloud Computing ETF and First Trust Cloud Computing ETF.
Here’s a selection of related ETF ideas
| Product Name | ISIN | Exchange Ticker | Listing Currency |
| WisdomTree Cloud Computing Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi |
IE00BJGWQN72 | KLWD | GBP |
| WisdomTree Artificial Intelligence Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi |
IE00BKLF1R75 | INTL | GBP |
| WisdomTree Battery Solutions Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi |
IE00BKLF1R75 | CHRG | GBP |
