05/01/2021
Cloud Computing, Investments & the 4th Industrial Revolution
Look up the phrase ‘the 4th Industrial Revolution’ or ‘Industry 4.0’ and you’ll see that it refers to the big advancements that are made in industry and manufacturing through the use of smart technology. This shift to more efficient methods of working is coined as ‘digital transformation’ and cloud computing is playing a central role.
The Global X Cloud Computing Exchange Traded Fund or ‘CLOU’ as it’s known on the NASDAQ stock market represents a great way to invest in a broad range of computing stocks with a relatively low, evenly spread risk. Taking advantage of this opportunity is something we look at in closer detail in this article.
The Popularity of SaaS or ‘Software as a Service’
SAAS has quickly become the biggest industry in the S&P 500 index, representing a market that’s currently worth $4.3 trillion. As we mentioned, cloud computing is at the very epicentre of the digital transformation movement and investing in CLOU allows you to avoid individual stock risk. SaaS is a new paradigm that’s powered by cloud computing and it has allowed software development companies to go to the next level.
The beauty of SaaS is that rather than having to create revenue through the sales of ongoing licenses, companies are able to:
● Create a steady stream of revenue
● Enjoy lower customer churn rate due to the cost of switching
● Have an onboarding process that cheaper for the customer
● Get a better lifetime value from their customers
What’s more, companies offering SaaS products invariably have better margins, revenue and cash flow than those that don’t use these popular cloud-based services.
PaaS & IaaS Are Also Growing Strongly
Other associated business models that offer upselling and cross-selling opportunities from SaaS software products are Platform-as-a-Service (Paas) and Infrastructure-as-a-Service (IaaS). The potential in this sector is illustrated by the fact that large companies like Amazon Web Services and Microsoft have created products in the field.
In addition to the big players, there are many other companies in the sector offering this kind of service, resulting in 35 separate cloud computing stocks being available in the ETF portfolio. Investing in CLOU allows you to spread your risk across a broad range of assets and with the technology solution hugely benefitting from the Covid-19 crisis and more businesses moving to remote working, these stocks are seriously rocketing in price.
Will The Rise in Cloud Computing Stocks Continue?
The rise of cloud computing stock has been marked over the past few months and with vaccine trials producing what looks like an effective solution to the problem, this rise in value will surely slow down over the coming weeks and months.
The boom is also quite similar to the one experienced during the ‘dot.com’ period in history. Those with long enough memories will recall that those stocks took a major dive and that could be repeated here, but internet companies do seem to have much more substance than they did at the turn of the century.
An Opportunity Too Good to Miss?
CLOU comprises around 35 SaaS, IaaS and PaaS stocks and for the investor, the risk is evenly balanced over almost the entire portfolio. Aside from Fastly and Paycom, their valuations all seem to be very reasonable, however, a vaccine-induced end to the restrictions caused by the pandemic could throw a spanner in the works. A crash similar to the dot.com collapse is also a concern, but it does seem improbable at this point in time.
All things considered, CLOU represents a sound investment for the long term and as the 4th industrial revolution is happening as we speak, it might just be an opportunity that’s too good to miss. That’s why all the experts are saying that it’s an investment well worth considering.
