Investing in Cloud Computing Companies Unconventionally
Three Simple Strategies for Investing in Cloud Computing
The future in technology is the tenant future of cloud computing. Though I personally think it is an awful future, where I no longer own my own data, and I have to pay someone to access my own data. But, it's happened. It's happening. I can't stop it. I can see the tide rising up and dominating the world. Ergo, as an investor, I would be remiss not to investigate how to ride this rising tide of big data!
The Safest Investments are the Broadest Investments!
First, in your investment portfolio, you do not want to invest lightly. When you make decisions, the money is real, and it really goes away when you invest in something ridiculous like Solyndra or Zynga. For this reason, investigate carefully, and investigate again. And, when investigation is too much for you, invest in an ETF market segment.
Numerous ETFs track technology as a sector. iShares, Vanguard, and numerous others take an index fund approach to the sector. Investing in an ETF is a tax-sheltered method of approaching a whole sector, and picking the winners because you are picking the losers, too. The explosive growth that is possible in the tech sector is particularly enticing in an index fund. It is hard to predict the winners and the losers. When success happens, it tends to be a huge success that shifts the paradigms of business all over the world. Ergo, an investment in such an ETF would be a great way to hedge your bets, focus on the big picture, and profit from the paradigm shifts without having to do the research into picking winners.
Naturally, this also means you will pick a lot of losers, and the potential explosive growth that comes from picking only winners is muted by picking so many losers, but the safety of the bet with your investment cannot be understated. Any stock investment is risky, and technology is traditionally riskier than most. A broad index of tech stocks is slightly safer than picking one or two stocks with the potential for explosive growth... And, explosive failure!
For most investors, this is the best way to ride the wave of cloud computing.
Want to Make a Bet on Specific Companies?
Beyond ETF investing, and sector-strategies, choosing a specific company or two as your target for growth is a great way to profit from the rising tide of cloud computing. Of course, this means cracking some books and earnings statements and seeing what there is to see. For instance, Rackspace is a classic play in the tech sector for their excellent hosting service, but their earnings potential is already baked into their price: Investors have been talking about this popular tech stock for years, and the price reflects that! Beyond just Rackspace, companies like Amazon and Google offer exposure to the cloud future, as both are deeply involved in streaming and cloud-based media, as well as hosting from their own massive servers. These, too, are already quite high in price compared to their earnings.
Akamai technology (disclosure: I own some of this one) focuses on streaming. With the wind down of their business with Netflix, I suspect they are going to go up or down depending on whether they can replace their lost business with companies that aren't such data hogs, or not. Netflix, in my opinion, is a waning early giant, whose technology will be supplanted just as blockbuster was supplanted, and I have more faith in Hulu and Amazon Select than I do in Netflix. Regardless, streaming is the big, important thing about cloud computing. Companies that help streaming go better will be winners in the years to come, and Akamai is one of those companies.
Data storage and warehousing is also going to be huge. IBM, Terradata, and others host all this information that must be offloaded somewhere. Other companies like them will provide the server farms that fuel the cloud future.
This data has to come to us from somewhere. AT&T, Verizon, and others like them are producing the 4G and faster internet that will be driving the possibilities of cloud computing. Without a fast, reliable internet, data has to be kept locally. Cisco lays the wires. T-Mobile produces Clear 4G internet. There are pieces in between the data and the consumer where a savvy investor can find their place in the burgeoning cloud.
The Data Has to Go Somewhere, to a physical device
If you're anything like my grandfather, you couldn't give a twit's whistle about the internet. You'd think it's all a bunch of too-smart children trolling each other and looking at pictures when they should be in the real world. Well, lucky you, the internet does have a physical connection to the world. People can't just imagine their way to the cloud.They need devices that can help them access that data. Along these lines some of the least-conventional cloud investments might be some of the smartest.
Apple, naturally, makes the fabulous iPhone, iPad, etc. It's really nice. The latest iPhone is a spectacular device. Really.
But, the Surface, from Microsoft, is also quite lovely. Microsoft is still a leader in computing, and pays a nice dividend to go with their ownership of one of the most important technologies in the world: the Microsoft Office Suite upon which the entire world goes to work!
Intel, and AMD, and other chip and microprocessor companies are deep in the cloud, building the tools that companies use to run their little devices. Certainly, there is a great future with either large chip manufacturer as they battle for marketshare in a burgeoning field.
Both of these companies are savvy investments, though both already have a significant boost in their price related to the potential of cloud computing. There's another layer beyond, though, because the parts that make up these devices have to some from somewhere. Corning makes the glass on iPhone screens, and most smart phones. That touch glass? That's an investment in a patented product that's definitely an important part of the cloud future because it is literally the window into the cloud. Corning is rumored to have some sort of bendable glass coming, that will revolutionize folding hand-held devices, too. Imagine an eBook reader you could fold up like a sheet of paper and slip into your pocket. Corning makes the glass that makes that possible.
Also, where do the minerals and metals come from? If I can go back to the ETFs, an investment in the opposite of clouds is also an investment in the Cloud. Mining companies bring out all the rare earth metals and minerals that are indispensable to the production of our elaborate devices. A mining stock and precious metals ETF is a great way to touch the cloud from afar, yet to be carried forward by the cloud. We run our fancy devices on precious metals and minerals. We run them with plastic that came from oil and synthetic fibers. We still live in a material world. It isn't all software floating around in bits through the sky. There's still a material reality to the cloud future, and one that can be invested in widely.
Anyway, those are some of my top picks for the cloud future. (Full disclosure, I own precious metals and minerals etfs, Microsoft, Akamai, and Intel.)