Battle in the sky | why investors must watch clash in the cloud to find returns | SKYY
The substantial drop in Apple’s expected iPhone sales was
enough to rattle global markets at the start of 2019, with fears over its
dependence on selling products still very much at the forefront of investors’
Apple itself faces some specific challenges when it
comes to changing investor perceptions about its business, with many very much
still viewing it as a retailer rather than a technology giant taking a leading
role in the growing cloud space.
Nonetheless, this is where attention should now be
focused as more and more capital is deployed by technology giants in the cloud
above all else.
In 2018, spending on cloud computing was the single
largest component of all IT spending globally. In the final quarter of last
year, spend on cloud infrastructure services jumped 45% from the fourth quarter
of 2017, giving a full-year growth rate of 48% in 2018. In the third quarter of
2018 alone, spending rose $21bn in real terms.
Why the cloud matters
The cloud has become the key battleground for the
world’s largest technology providers because of its increasingly widespread
Thanks to the explosion in interconnected devices, businesses
which themselves are worth billions of dollars have been allowed to flourish.
This includes Uber, Netflix and Airbnb, to name but a few. However, without
cloud-based technology to support them, these businesses simply would not
As the cloud becomes more reliable and secure, most
businesses are also recognising it is both cost effective and the safest way to
transition data storage and work environments.
Email led the move to the cloud over the last four
years, but now more and more services are being transitioned over, with the
solution offering companies lower costs and increased speed versus in-house
As a result, more and more individuals and businesses
now rely on the cloud and whichever platform becomes dominant in this space will
likely translate to the most valuable company in 2019.
Interestingly, amid a hefty sell-off across the board
for the tech superstars in the last quarter of 2018, it is the giants of cloud
technology holding up the best, with Microsoft currently sitting at the top of
the pile at the start of the year on a market cap basis.
Who is winning?
Amazon and Microsoft, and to a lesser extent Alphabet,
have all been increasing spending on cloud technology in recent years, and
there is unlikely to be any let up this year.
For some businesses the revenue growth has been
eye-catching, with Microsoft nearly doubling its revenues in this space since
Comparing revenues from the cloud gives an insight
into just how fierce this competition is becoming. In the fourth quarter, Microsoft
saw $9.6bn of revenues from its intelligent cloud business, versus $7.43bn for
Amazon’s AWS (Amazon Web Services) division.
Meanwhile Apple has lagged behind its main rivals when
it comes to cloud generated revenues, however, even it is spending more and
looking to take a prominent role in cloud services for consumers and businesses
As the figures show, revenues from this source are
reaching record levels and do not appear to be slowing down as the cloud
becomes increasingly important.
However, there are a number of other players outside
the top three also capitalising on the cloud phenomenon.
Among them, Cisco, Verizon and Adobe are all
increasingly tapping into this market, while IBM recently paid an eye-watering
£34bn to buy cloud specialist Redhat late last year which summarised just how
vital this space is.
The price paid by IBM was a 60% premium to its share
price, with analysts noting just how important this sector has become to some
of the world’s biggest companies.
Tech specialists said the deal was necessary for IBM
to stay relevant having trailed the big players for years previously. Quite
simply, if such companies don’t have a cloud strategy they know their days could
How to play it
As the IBM/Redhat deal shows, as well as focusing on
the biggest names in the world, investors can focus on some of the smaller
players in the cloud space whose innovation is nonetheless turning the right
There are a number of ETFs offering exposure to this
trend, including the HAN-GINS Global Cloud Technology UCITS
Tracking the Solactive Cloud Technology Index, made up
of leading companies in the cloud-based software and services sector, the fund
uses artificial intelligence screening to identify and capture opportunities.
It is clear the ETF industry is beginning to respond
to this dynamic market. Innovative solutions are available to wealth managers, with
the cloud one theme that will be with us for some time to come.
 According to figures from Statista for Q4 2018 https://www.statista.com/statistics/250520/forecast-of-amazon-web-services-revenue/ and https://www.statista.com/statistics/508993/worldwide-microsoft-intelligent-cloud-revenue-by-quarter/