In late September, the tech sector received a big boost when cloud-based software company Nutanix’s initial public offering more than doubled in the largest first day gain for a new tech stock offering so far this year.
Nutanix’s shares closed the first day at $37, about a 131 percent increase from its $16 initial offering price. The company’s founders have said they emulated techniques used by web giants like Alphabet and Facebook to operate massive data centers more economically.
Corporate America has embraced cloud computing in a grand way and it is driving the stock prices of the companies that have emerged as the big cloud computing players such as Amazon, Alphabet, International Business Machines (IBM) and Microsoft.
The latter companies are all a part of the First Trust ISE Cloud Computing Index Fund (SKYY), is the only ETF on the market that focuses on cloud computing Since June 28 to the date of this article, SKYY has increased 17.41 percent, outperforming the S&P 500 Index and has moved consistently above the comparable S&P Information Technology Sector Index measure. The last time SKYY had outperformed the S&P 500 was on January 26 of this year, a success barely lasting into February.
With 34 holdings, the SKYY is designed to provide a benchmark for investors interested in companies actively involved in the cloud computing industry. Companies such as NetSuite and Zynga join Amazon, Facebook and Alphabet it the fund’s top 10 holdings, according to a XTF ETF Experts report. Software and IT services make up nearly 70 percent of SKYY’s holdings.
Two trends are boosting cloud computing stocks, said Nomura analyst Anthony DiClemente, in a research note: a shift of consumer spending away from traditional bricks-and-mortar retail and toward e-commerce and the ongoing conversion of enterprise software spending away from on-premise deployments to cloud deployments.
Digital transformation is disrupting many markets today and this contributes to the cloud wars between the leading providers said Michael Segal, director of marketing at NetScout Systems– part of SKYY–at a panel discussion held earlier this month titled, “Who will win the cloud wars: Google, Amazon, Microsoft, IBM — or traditional carriers?”
Although 2016 wasn’t the strongest year for tech IPOs, investors are flocking to companies with strong positions in cloud computing services. Executives at Microsoft, Apple, IBM and Alphabet have emphasized how their respective companies are investing in cloud technology by revamping their infrastructure and appealing to clients with cloud services.
It should be expected that stock shares of SKYY companies continue to grow as cloud services continue to increase in demand.
“Public cloud services are the biggest disruption in the tech market in the past 15 years — and adoption is accelerating,” notes Andrew Bartels, vice president and principal analyst serving CIOs at Forrester, in a report.
451 Research’s Market Monitor forecasts that the market for cloud computing “as a service” will hit $21.9 billion in 2016 more than doubling to $44.2 billion by 2020, according to a blog post by financials research director Brenon Daly.
The push for cloud computing to be available on a global scale also contributes to the growing investment in companies truly developing this aspect of their product. Microsoft is one of the few companies making cloud services accessible in regulated industries; it is the only cloud that operates in China under Chinese law and the only cloud that operates in Germany under German law, according to Microsoft CEO Satya Nadella.
Alphabet has rebranded its cloud services as Google Cloud and Amazon is expected to be one of the fastest growing companies to offer cloud services.