Chart of the Week: Future Remains Bright for Cloud Computing Stocks

July 23, 2021

Everyone has heard of “cloud computing” and “moving data to the cloud”. For those familiar with technology, it is clearly an investing megatrend that will continue to grow in the decade ahead.

There’s no doubt that Covid-19 provided a boost to the migration of workloads to the cloud. In a sign of its importance, one of the biggest companies to go public last year was cloud-focused warehousing solution provider Snowflake Inc (NYSE: SNOW).

And next week, with the three cloud computing giants – Inc (NASDAQ: AMZN), Microsoft Corporation (NASDAQ: MSFT) and Alphabet Inc (NASDAQ: GOOGL) – all set to report earnings, the continued shift to the cloud will come into focus once more.

That’s because the three tech giants have seen their cloud divisions become a bigger and bigger portion of their overall businesses.

The Cloud makes sense

It’s no surprise given the convenience and cost benefits companies can realise when migrating data storage to the cloud.

According to the latest Morgan Stanley survey of Chief Information Offers (CIOs) of major corporations in the US, the majority of data storage continues to be in on-premise servers (see below).

Clearly, this is inefficient and the public cloud – which allows companies to leverage on major cloud computing providers to essentially ramp up or ramp down their data usage – is continuing to gain share.

Projected to make up 24% of application workloads by the end of this year, the jump to a forecast 37% by the end of 2024 means the runway for expansion in cloud is still large.

Worldwide, public cloud spending is set to rise 18% in 2021, according to tech consulting firm Gartner.

It also predicts that 70% of organisations already using the cloud plan to increase cloud spending given the increased demand following Covid-19 – a sign that this demand is likely to last.

Remember that, in the US, a whole ecosystem of Software-as-a-Service (SaaS) companies operate services that are “cloud native”, with many seeing continued growth as the US economy opens up.

For the cloud computing industry as a whole, while the global pandemic accelerated the cloud migration, there’s clearly still plenty of the journey left to be completed. Long-term investors should take note.

Cloud computing adoption

Source: Morgan Stanley Q2 2021 CIO survey

Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Microsoft Corporation.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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