Flying High; Take a Look at These Cloud Stocks

Tedra is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A few years ago when people started telling me to store my information in the cloud, I thought, “Hmmm, I wonder what form of smoking is being suggested here!”

All jokes aside, however, this area of technology, commonly referred to as cloud computing, has grown by leaps and bounds. With that growth comes a solid way for investors to store their money in the stock market.

As testament to the growing popularity of cloud computing, several companies are expanding their offerings in the space. Among the players operating in it are Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), Google (NASDAQ: GOOG) Rackspace (NYSE: RAX) and Salesforce.com (NYSE: CRM).

Before you jump into this space and buy one of these stocks based on the company’s cloud computing business, it’s important that you understand the many components of it. At the risk of boring you to death (unless you are a techy) I won’t dwell on these components. A quick summary should suffice.

There are three basic divisions of cloud computing: Software-as-a-Service SaaS, Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS). SaaS involves customers accessing a specific cloud application by paying a subscription. PaaS lets the customer customize their own apps, and IaaS lets customers buy the infrastructure from specific providers.

I see companies, like those I mentioned above, that offer SaaS as being the strongest contenders to carve out the most market share in the space and make the most money in the long term. That’s because SaaS is popular among small businesses, which is the segment most likely to need and use cloud computing.

Also be sure to review how these companies are managing to secure their cloud services. Security is the number one concern businesses have when using cloud services. Breaches have the potential to spell disaster for companies that provide the service; they can cause them to lose customers. This, in turn, can affect the company’s financial results and you as an investor. Companies that are willing to invest in securing their cloud services will do best over the long-term.

In a nutshell, cloud computing involves moving from traditional software programs run on individual computers to the Internet, which is more accessible, cheaper and efficient. Although cloud computing has been around for years, we are seeing an explosion in the number of companies entering the space to offer the service.

Business owners and managers can also avoid the headaches that come along with having to maintain their IT systems. This can leave them with the time to focus on their core businesses.

Take Instagram for example. It was able to build its photo-sharing company without having to set up its own servers. Instead, it used cloud computing and was so successful, it was able to sell its business to Facebook for a cool $1 billion.

Google shook things up a bit last week when it announced that it would begin charging small businesses for the use of its rapidly growing in popularity Google Apps software. Specifically, Google will charge small businesses – those with 10 or fewer people – the same rate it charges larger businesses. That rate is $50 per user per year. This will give the in-anything-technology, A.K.A. Google, another source of revenues to add to its coffers.

Microsoft offers Azure, a cloud service aimed at businesses, also for a fee. Users can develop a platform to create web applications and services. It is touted as being especially useful for start-ups.

Then there is Salesforce.com, which has established itself as a formidable contender in the space. Since being founded in 1999, the company has steadily grown its business and its market valuation to roughly $22 billion. It is forecast to grow to as much as $50 billion within the next five years.

Rackspace achieved a first in the space when it introduced its large-scale open source public cloud. Its customers can now select from private or public cloud, dedicated, virtualized or hybrid offerings. They can deploy their private cloud in their own datacenter, a Rackspace data center or another data center of their choice.

Few would argue that Amazon is the most revered in the cloud computing space with its Amazon Web Services (AWS). You can say it started all this cloud business back in 2006. It’s grown to an estimated $1.5 billion business.

If you are considering investing in any of the companies noted in this article because of their business in the cloud space, you can take comfort in knowing that all of them are fiscally sound companies. You can also take solace in knowing that this space is expected to grow exponentially for the years to come.

 

 


TwillyD has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com, Google, Microsoft, and Netflix and has the following options: long JAN 2013 $50.00 puts on Salesforce.com. Motley Fool newsletter services recommend Amazon.com, Salesforce.com, Google, Microsoft, Netflix, and Rackspace Hosting. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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