The Forecast For 2021: Cloud(y)

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Last year gave new prominence to online and digital workarounds to traditional in-person office jobs. But while the rise of remote work and its effects on 21st century labor are still being litigated, the undercurrents of the digital revolution have continued to irrevocably change how companies and government institutions view and budget for IT and cybersecurity expenses.

The course of 2020 saw spending on cloud infrastructure surge as companies were compelled to decentralize their workforce and pare down their IT frameworks to both cut costs and improve the security of their digital assets. Figures from industry analyst group Canalys estimate spending on cloud infrastructure increased by 33% from 2019 to $142B, with $6.6B of that coming from the federal government. 

This wholesale trend away from in-house IT to a more distributed network of data centers and SaaS providers is unlikely to slow and has shown up in the balance sheets of many of these firms, helping drive investment into the rapidly expanding industry.

This has also translated into strong performance within the recently released Daily Cloud Computing Bull 2X Shares CLDL from ETF provider Direxion, which has gained about 15% in its first 30 days of trading. Below, we’ll take a look at some of the individual components and overriding trends that are influencing growth within the cloud segment.

The Answer’s in the Cloud

Among the most encouraging signs for growth within the cloud segment is the recent earnings results from major constituents in the industry, particularly among SaaS providers like RingCentral, Inc. RNG and ServiceNow, Inc. NOW.

Unlike a broad swath of the market, these firms are not only surpassing analyst expectations but also showing consistent earnings growth over 2019, with RNG posting more than 10% year-over-year growth and NOW’s revenue jumping by more than 30% from Q4 2019.

Even larger blue chip firms like Oracle Corporation ORCL have seen revenue growth through the depths of the pandemic, largely as a result of its emphasis on cloud revenue. In its most recent earnings call. Oracle CEO Safra Cats cited that company had increased cloud’s share of the company’s revenue to 73%.

With recent earnings beats from salesforce.com, inc. CRM Workday, Inc. WDAY Zoom Video Communications, Inc. ZM, the industry is likely to see increased attention as the cloud growth story continues to unfold.

Cybersecurity

In addition to the core cloud software and data services companies, cloud computing also encompasses the increasingly crucial cybersecurity industry, a segment that has only grown in prominence in tandem with the scale and cost of cyberattacks in the 21st century. The latest massive SolarWinds hack that impacted an array of U.S. government agencies late in 2020 is expected to cost cybersecurity insurers upward of $90M, while the cost of fixing the damage done may take billions of dollars.

Following that breach, prominent cloud cybersecurity firms like Zscaler, Inc. ZS and CrowdStrike Holdings, Inc. CRWD saw a strong surge in investments on top of an already strong year, Both stocks rose by more than 300% over the course of 2020.

This massive growth could in part be chalked up to a result of the unique challenges of the year, but the companies have also gained a reputation for consistently strong revenue performance in their quarterly reports. In fact, both companies have managed to post revenue growth in every quarterly report they have filed since going public, ZS in 2018 and CRWD in 2019, and the same is expected in their upcoming filings in late February and early March.

Silver Lining

While these accelerated revenue trends may or may not last as the cloud segment ossifies and leaders begin to emerge and set industry trends, the current environment for cloud computing is still one of discovery and, by all indications, continued growth. Even massive tech firms like Amazon.com, Inc. AMZN and Microsoft MSFT are jockeying for early dominance in the space.

For now, traders would do well to keep a keen focus on cloud computing and look to company balance sheets for indications of where the market is headed. Even reports from seemingly unrelated industries could prove enlightening, since every company needs someone to handle their data.

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CLDL as of 12/31/2021

Top Ten Holdings %

 

 

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The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.