Three ways to profit from cloud computing
While the overall gain -- just 3% -- is paltry compared to rising healthcare spending, a closer look at the numbers reveals at least one pocket of strength: cloud computing services.
Yet there's also troubling news in the numbers. Spending on telecommunications services will rise just 1.4%, Gartner estimates, to $1.69 trillion. That's a big number, I realize, but investors are rightly focused on the growth rate. Slower spending in this sector has battered the shares of infrastructure suppliers such as Acme Packet and Riverbed Technology.
Both stocks are down more than 40% year-to-date versus a 10% gain for the Nasdaq Composite. Acme Packet, in particular, preannounced yet another earnings miss last week, as the company continues to work through problems selling to domestic carriers that supply the majority of its revenue.
Three things you can do right now
We know to be careful investing in telecom. But how should investors react to increased spending on cloud services? I'd suggest betting on the top services in their respective niches, which aren't dependent on the goodwill of others in order to win business. Here are three I like right now:
- Google (NAS: GOOG). The king of online advertising is slowly winning a large audience for its Google Apps alternative to Office. What's more, the company's efforts in hardware (i.e., Chromebooks, the Nexus 7 tablet) make it a go-to outfitter for consumers turning away from PCs toward cloudy alternatives.
- Amazon.com. Creator of a popular hosting environment called Amazon Web Services, the e-tailer has become a sort of entryway for those building and supplying cloud services to consumers and other businesses. One of a handful of 'picks and shovels' stocks I like right now.
- Salesforce.com. The most popular provider of business software delivered via the cloud serves thousands of customers. CEO Marc Benioff has also led the way in transforming how we think about social media -- from a one-off time waster to that of a full-scale business communications platform. No less than Microsoft has responded by spending $1.2 billion to acquire Yammer, a specialist site that competes with salesforce's Chatter service.