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As our personal file collections grow larger and digital media continues to expand its reach, cloud software companies’ stocks are catching the attention of investors. 

Supporting a global network of remote servers that allow users to connect, collaborate and share files, cloud computing stocks have seen consistent rises since the start of the COVID-19 pandemic. 

Read on to learn more about how cloud computing works and what cloud computing stock investors are looking for in their next investment. 

Understanding Cloud Software Companies

Before choosing which cloud computing stocks are worth your investment, it’s important to understand how cloud computing software companies work. In its most basic definition, cloud computing companies operate a remote server that users not directly connected to the server can access. 

Depending on the company’s structure, users may be collaborators able to download, edit and store content on a remote server. Instead of owning and maintaining physical hardware and infrastructure, businesses and individuals can access and use these services pay-as-you-go, saving money and physical space. 

There are two major ways that cloud computing companies can deliver their services. 

  • Public cloud: Public cloud services are accessible to members of the public who fulfill certain requirements — like signing up for an account or purchasing a subscription. For example, streaming giant Netflix NASDAQ: NFLX uses a public cloud model to simultaneously provide millions of users access to content. These companies often offer their stocks directly to the market for investment. 
  • Private cloud: By contrast, private cloud servers are only accessible to specific, authorized users within a network. These clouds often have a central location close to the business’s headquarters for enhanced connectivity. For example, a mid-sized company may set up its private cloud to share projects between employees. 

In these cases, investing in private cloud computing is possible by investing in the companies that manufacture products needed to set up these servers. For example, computer chip manufacturer Nvidia Corp. NASDAQ: NVDA has seen sharp increases in its share price since demand for cloud computing services began to rise during the height of the pandemic. 

There are multiple layers of cloud computing companies, with the services available to users varying based on their layer-by-layer composition. Infrastructure-as-a-Service (IaaS) forms the foundational layer of cloud offerings, providing essential elements for businesses operating in the cloud. IaaS includes server space, storage, computing power, and user data security. 

The next layer of cloud-based software is platform-as-a-service (PaaS), which allows developers to create usable applications and software on top of cloud services. PaaS layers are constructed on top of IaaS; not every company offers these capabilities. Some companies may alternatively offer software-as-a-service (SaaS) subscriptions, which provide customers with custom-built applications ready to use after a quick download. 

Factors Influencing Cloud Software Companies’ Stocks

Like most other niches in the tech industry, income and stock prices for cloud computing companies can be highly volatile depending on new tech developments and market preferences. 

Market trends and demand play a major role in customer preference for cloud computing services, with companies introducing enhanced connectivity rewarded with higher cloud space stock prices. Digital transformation initiatives in artificial intelligence, machine learning and the Internet of Things (IoT) drive demand for both public and private cloud computing services. 

One of the largest areas of growing demand for cloud based stocks is the introduction of edge computing. Edge computing is a distributed computing paradigm that brings computation and data storage closer to the source of data generation. Instead of relying solely on centralized cloud servers, edge computing processes data locally on devices or edge servers situated near the data source. 

This approach aims to reduce latency, providing each user on the network with faster speeds and enhanced connectivity. Companies investing heavily in edge computing infrastructures and technology may be poised for increased investor demand. 

Financial Performance

Analyzing the financial performance of each stock you’re considering is also essential for investing in the top cloud companies. Some financial indicators you’ll want to consider before investing include: 

  • Revenue growth: Revenue growth describes a company’s income increase compared to the previous period. Cloud computing companies often experience initial strong revenue growth due to increasing service demand. As businesses adopt cloud solutions for scalability, it’s important to consider how consistent revenue growth trends are quarter over quarter. 
  • Profit margin: Profit margins measure the profitability of a company and its ability to generate earnings from its operations. While initial revenue growth may be high for a new cloud computing company, profit margins vary regularly based on performance. Cloud computing companies may initially prioritize market share and invest heavily in infrastructure, research and development. Over time, efficient cost management and economies of scale may lead to improved profit margins.
  • Operating expenses: Operating expenses include costs related to running the day-to-day operations of a business. Cloud providers may incur significant operating expenses in maintaining data centers, making positive cash flow management essential for business sustainability. 

Competitive Landscape

Analyzing the cloud computing landscape can also help you make smarter investments more likely to see long-term success. IaaS serves as the core component of the cloud computing industry, experiencing an average annual growth rate of 35.9% for the past six years. Recognizable tech names dominate this market segment, including Amazon.com Inc. NASDAQ: AMZN, which makes up roughly 40% of the industry. 

PaaS has grown at an average rate of 35.2% over the past six years — with Amazon.com remaining the largest player in this market segment as well. Other major names in the PaaS sphere include Salesforce Inc. NYSE: CRM and Microsoft Corp. NASDAQ: MSFT. Microsoft, Salesforce and Adobe Inc.NASDAQ: ADBE dominate this sphere.

Risks and Challenges

Understanding the unique risks of investing in tech ventures is essential before buying any type of stock. The following are some major market risks and challenges the cloud computing industry faces: 

  • Regulatory concerns: Cloud computing companies may face regulatory challenges related to data privacy and compliance, which can mean significant financial loss if the company cannot modify its offerings to meet regulations. For example, regulations like the General Data Protection Regulation set in Europe or the California Consumer Privacy Act in the United States require cloud providers to implement additional measures to protect customer data, which could increase costs or limit market opportunities.
  • Cybersecurity threats: Cloud computing companies are especially susceptible to cybersecurity threats, including data breaches and ransomware attacks. A security breach could result in the loss or theft of sensitive data, financial losses, reputational damage and legal liabilities. Explore each potential investment’s security features and measures when choosing which companies to invest in. 
  • Market volatility: The stock prices of cloud computing companies can be highly volatile, subject to fluctuations in market sentiment like most other tech stocks. If you’re looking for less volatile investments, consider blue-chip tech companies, which are less likely to see drastic changes in share price. 

Ways to Invest in Cloud Computing Companies

You can invest in cloud computing companies using individual stocks or exchange-traded funds (ETFs). Your ideal investment opportunity will vary depending on your risk tolerance, knowledge level and investment goals.

Individual Stocks 

The most straightforward option to invest in cloud computing companies is to purchase shares of the individual companies that make up the industry. Some of the best tech stocks to buy now for cloud computing exposure beyond the options highlighted above include: 

  • ServiceNow: ServiceNow Inc. NYSE: NOW is a leading cloud-based service management software provider. The company’s SaaS platform helps organizations automate and streamline IT service delivery, employee workflow and customer service operations. It had a total market capitalization of more than $161 billion in March of 2024, making it another large choice for cloud computing investments. 
  • Zoom Video Communications: Zoom Video Communications Inc. NASDAQ: ZM is another medium-sized cloud computing choice, with a total market capitalization of $21 billion in March 2024. Best known for providing virtual meeting spaces, the company’s SaaS platform has experienced significant growth, particularly during the COVID-19 pandemic, as remote work and communication became more prevalent.

Exchange-Traded Funds 

In addition to individual shares, you can invest in multiple cloud computing stocks by investing in an ETF that tracks an index related to cloud computing. Some of the largest cloud computing ETFs include: 

  • Global X Cloud Computing ETF: The Global X Cloud Computing ETF NASDAQ: CLOU  invests in a global portfolio of cloud computing companies and the industries that support them. It has a total market capitalization of more than $640 million, making it one of the largest mid-size options for cloud computing investment. 
  • Themes Cloud Computing ETF: If you’re a lower-value investor looking for a cloud computing ETF with lower per-share pricing, consider the Themes Cloud Computing ETF NASDAQ: CLOD. With just $1.3 million in assets under management, it’s a smaller option for investors looking for an ETF with growth potential. However, its lower daily trading volume could necessitate a limit-order purchase. 
  • First Trust Cloud Computing ETF: The First Trust Cloud Computing ETF NASDAQ: SKYY tracks the SE Cloud Computing index with a total market capitalization of $3.2 billion in March 2024. This fund ensures that no individual stock makes up more than 4.5% of the fund’s total assets under management, providing investors with more diversification

Investing in Cloud Computing Stocks

Now that you understand the basics of the cloud computing industry let’s look at how to buy your first share of stock

Step 1: Do your research.

Before buying shares of stock, it’s crucial to research and understand the investment opportunities available. Start by exploring a few companies and ETFs detailed above to begin your search before branching off to competing providers and funds. Look into financial reports and earnings statements before investing — you can find these items on each company’s website. Leaving yourself with time for research helps you make more informed decisions about which stocks align with your unique investment goals and risk tolerance.

Step 2: Open a brokerage account.

A brokerage account is a platform financial institutions provide that allows you to buy and sell stocks through the broker’s interface. 

Choose a reputable brokerage based on factors such as fees, available tools and the type of assets the broker provides access to. While all the stocks and ETFs listed above trade on major U.S. exchanges (and will be available for investment with nearly any U.S. broker), you may need to seek a specialized brokerage for international or penny stock investments. 

Review MarketBeat’s tips to select the right broker and open your account. 

Step 3: Place your first buy order.

After funding your brokerage account, you can place a buy order to acquire shares of the chosen stock. Specify the stock symbol, the number of shares you want to purchase and the type of order — learn more about the major stock orders you can use

Confirm the order details before submitting it, as many orders will execute immediately. 

Step 4: Monitor your investment.

If you can execute your order according to your specifications, you’ll see your shares listed in your brokerage account. From here, your next steps will vary depending on performance, goals and your ideal investment timeline. Log into your brokerage account regularly to track how your investment changes in value. 

Is Cloud Computing a Good Investment?

There’s no way to deny that the cloud computing industry has grown exponentially since its introduction. The cloud computing industry has grown from an estimated $135.27 billion in total value in 2016 to $481.07 billion in 2022 alone, increasing investor interest. If you’re investing in the cloud computing industry as a beginner, we recommend starting with an ETF, which offers instant diversification. 

FAQs

The following are some last-minute questions you may still have about cloud computing software investing and major players in the industry. 

What are the best cloud stocks?

Some of the largest publicly traded companies operating in cloud computing include Amazon.com, Google and Salesforce. These options’ “best” investments will vary depending on your investment goals and timeframe. 

Is it good to invest in cloud computing?

Investing in cloud computing can be advantageous due to the industry’s rapid growth and innovation. These companies have seen more than $200 billion in collective growth since 2016, with a surge of interest from the COVID-19 pandemic’s need for virtual work solutions. However, it’s essential to research companies thoroughly and do your market research before investing. 

What are the big cloud software companies?

Some of the biggest cloud software companies include Amazon.com, Microsoft, Adobe and Alphabet, best known for their Google web search and services. 

Before you consider Amazon.com, you’ll want to hear this.

MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and Amazon.com wasn’t on the list.

While Amazon.com currently has a “Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

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