Cloud Computing: How To Beat The Markets This Week? Markets This Week: Cloud Computing

Nobody likes to see a shaky economy. The risk that major companies across the globe could earn less this year than projected has lots of investors worried. That’s why I’m looking to cloud computing for salvation. Now, please understand that the cloud computing sector is not a fundamental or a value play. It’s a play on growth, and a very risky one at that. Right now, the major names in the cloud computing sector, like Salesforce.com (CRM) and F5 Networks (FFIV) are substantially outperforming the market. That’s good, right? The answer is: maybe.

Why am I buying any cloud computing stocks? Simply put, I expect that at least one of the names in this sector is going to see a 4,000% return over the next 10 years. Cloud computing is oriented towards businesses and corporations. It replaces the “server room” and much of the IT staff that anyone who has worked in an office is familiar with. Instead, the servers and staff are at a remote facility, and that facility shares the computing resources among all the companies that use the facility. It’s certainly a winning business model, and anything that offers cost savings to businesses is going to be adopted.

Why am I wary? Cloud computing companies currently suffer from a lot of the problems that we saw before the dot-com bubble: high P/E multiples, hype, and investors that don’t understand exactly what they’re buying. Buying companies in growth mode is banking on future earnings. If the earnings never materialize, investors will lose their proverbial shirts, and in emerging IT, the risk of failure is higher than other sectors.

Since you’ve stayed to the end, you deserve a conclusion. Yes, you should buy in the cloud computing sector, but you should diversify. If there was a cloud computing ETF, that’s what I would recommend. In lieu of that, or until one appears, buy and hold stock in several companies, particularly at least all three of these: Amazon.com (AMZN), which sells cloud computing services to business customers),  VMWare (VMW), and Citrix Systems (CTXS). They are my “best in breed” because they are companies that already show earnings. CRM and FFIV are newcomers to the market, so only buy shares here if you can follow the companies on a daily basis.

And of course, one element of following the company is regularly checking on its stock chart, to see how it’s holding up vs. the general market, or if it’s shaping a bullish pattern.

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The information in this article is provided for informational purposes only and should not be considered direct investment advice.  No guarantee is made that the strategies or securities discussed herein will be profitable. The information provided reflects the views of the author as of a particular time and are subject to change at any time without notice.