(Anthony Ginsberg, Founder – HAN-GINS Cloud Technology ETF)
Cloud Technology now accounts for almost 60% of total US technology spending, according to Gartner Research. They predict that Cloud spending will rise 18% this year alone, reaching $214bn.
The cloud has become the key battleground for the world’s largest technology providers because of its increasingly widespread use. The Internet of Things is largely driven by cloud computing. It covers smart devices, wearables (Fitbit), connected security systems, thermostats, cars, electronic appliances etc.
Tesla cars use the cloud to control their battery life. During the recent hurricane in the Bahamas – Elon Musk was able to extend the battery life for drivers of his Tesla cars in the Bahamas and Florida –by remotely disabling a battery setting.
The Players
A significant portion of Amazon’s profits now comes from its Amazon Web Services division, which leads in the growing cloud computing market – selling computing power and data storage. AWS’s earnings now account for more than 50% of Amazon’s total.
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 exist.
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 platforms. As the risks of cybersecurity and hacks increase, CEOs increasingly wish to outsource middle and back office areas to Cloud leaders.
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 2020.
Amid a volatile period for the so-called FAANG tech superstars, it is the giants of cloud technology holding up the best, with Microsoft currently sitting at the top of the pile on a market cap basis.
Amazon and Microsoft, and to a lesser extent Alphabet (Google), have all been increasing spending on cloud technology in recent years, and there is unlikely to be any let up this year.
Demand continues to grow
For some businesses the revenue growth has been eye-catching, with Microsoft nearly doubling its revenues in this space since 2015.
Microsoft is now the world’s most valuable company at close to $1trn – as companies increasingly pay subscriptions for software and renting computer power (rather than buying applications that run on their own servers).
AT&T just agreed to shift most internal business applications to Azure, partly to cut costs. AT&T signed a separate cloud deal with IBM-who completed their $34bn Red Hat Cloud acquisition.
For now we believe companies such as IBM’s recent acquisition of Red Hat – will be big winners as multinationals seek help transferring and sharing their IT data across multiple clouds. Proctor & Gamble confirmed they are not keen to bet the farm on any one Cloud provider and thus spread their usage across all major Cloud platforms.
Apple’s iCloud service continues to perform well. Apple’s services segment (iCloud and Apple Music etc) – makes more money than any single product line. iCloud hosts more 1 billion Apple devices – allowing users to organize photos, track their devices, store documents and send emails.
Cloud Technology ETFs and Index Funds – arguably offer the broadest & lowest-cost ways to access this dynamic area – which includes tech leaders in infrastructure, software and platforms. The HAN-GINS Cloud Technology ETF holds 50 Cloud companies – with the largest players capped at a 4.5% weighting.
Cloud companies we like:
1) SPLUNK Inc. (Nasdaq: SPLK) – corporate profile
Splunk Inc. is a US company that produces software for searching, monitoring, and analyzing machine generated big data – via a Web-style interface. The Company’s offerings enable users to collect, index, search, explore, monitor and analyze data.
The firm’s focus is making machine data accessible across an organization – by identifying data patterns, providing metrics, diagnosing problems, and providing intelligence for business operations. Splunk’s core offering collects and analyzes high volumes of machine-generated data. It represents over 2.3% of the (HAN-GINS Cloud Technology ETF (SKYY) – with approximately a $63bn market capitalization. Its software services provides usable insights into numerous digital systems — everything from websites and apps to servers and mobile devices. The company has said that the amount of data production each year will be 44 times greater in 2020 than it was just a decade ago. With the amount of digital information booming, Splunk has been growing by leaps and bounds. The 4th quarter 2018 represented almost a 50% gain in revenues over the similar quarter last year.
Making sense of the growing amount of data the digital world is generating is a top priority for many enterprises. Splunk is well positioned to benefit from the boom in digital data.
Splunk’s double-digit growth in 2018 was driven by companies’ continued interest in making use of the various unusable and unwieldy data they generate. It made several acquisitions, most notably a few in the cybersecurity realm – boosting Splunk’s presence in that space. Additionally they revealed new and updated product rollouts in the areas of Cloud computing and Internet of Things device tracking. Currently more than 2,000 apps from strategic partners are available on Splunkbase (an app store of sorts for companies) to extend the usefulness of the data analytics software for specific business needs.
2) Seagate Technology PLC – corporate profile (STX)
Seagate Technology PLC is a US data storage company and currently the world’s second-largest HDD (hard disk drive) maker and related storage products. It offers storage solutions for consumers and corporations. Unlike its bigger rival Western Digital who aggressively expanded its flash drives and memory business by acquiring SanDisk in 2016, Seagate focused on selling higher-capacity HDDs to data center customers to meet the rising demands of cloud-based services. Many of these customers prefer HDDs to SSDs because they offer much more storage per dollar. As the need for both hard disk and cloud storage dramatically increase, Seagate will benefit significantly. The growing demand for various gear used for cloud computing will help drive revenues.
Seagate is seen as a leading indicator of Cloud spending and capital expenditure growth. Its clients include all the largest Cloud infrastructure provider (IaaS) – including Amazon. Google, Apple and Facebook. Seagate’s latest 14-terabyte hard-drives will likely also spur demand due to their large storage capacity. Seagate benefits from accelerating data storage growth as enterprises adopt new data technologies.
3) NetApp Inc. (Nasdaq: NTAP)
NetApp, Inc. is a US hybrid cloud and data management company – ranked in the Fortune 500 since 2012.
It is very well positioned to take advantage of increasing transfer of data across multiple Cloud platforms. NetApp is focused increasingly on the SaaS piece of Cloud. NetApp was named the 2018 Google Cloud Technology Partner of the Year. It was recognized for the company’s achievements in the Google Cloud ecosystem, helping customers build and run applications on Google Cloud quickly and at scale with the right data strategy.
It provides software, systems and services to manage and store customer data via the cloud and at onsite premises. The Company enables businesses, enterprises, service providers, governmental organizations, and partners to deploy, transfer and evolve their information technology (IT) environments with safety.
The Company’s FlexPod portfolio includes core enterprise data centers for large clients, while also servicing medium-sized businesses and branch offices, and more select data-intensive workloads. This service runs enterprise applications and industry-specific workloads – across numerous fields including oil and gas, media and entertainment and life sciences that require high performance and file-based interfaces. Over 30 leading global enterprise organizations are already using the service to move large workloads to Google Cloud – 10 times faster than other alternative solutions.
Anthony Ginsberg, Founder – HAN-GINS Cloud Technology ETF