Are cloud stocks the safest bet within the tech sector? – Stock Market News
In 2022, tech companies have come under significant pressure from multiple fronts. Firstly, they are struggling to sustain their pandemic-era financial figures, which enabled them to outperform the broader markets in 2021. Moreover, the upcoming monetary tightening is expected to negatively affect tech stocks as higher interest rates reduce the value of companies’ future cash flows while borrowing to promote growth becomes less attractive. In this adverse environment, where investors will be actively looking for the tech sector’s relative winners, can cloud stocks be considered as the tech havens?
What is cloud computing and why is it vital for most enterprises?Cloud technology is considered as the cornerstone for the digital transformation of all kinds of companies. Specifically, it is a technology that leverages virtualisation to provide firms with data storage, computing power, access to databases and a wide variety of on-demand online features. These services are maintained by external providers at remote data centres, thus companies are gaining from the cloud’s attributes without having to establish and maintain their own unique server environment.
Without a doubt, the pandemic accelerated the companies’ needs for more efficient and complete cloud services, but this trend seems to be amongst the few that are not reversing or even slowing down as the world emerges from Covid-19. In that sense, companies that do not have the infrastructure or financing to set up these complex computer systems continue to rely heavily on the substantial features the cloud technology has given them access to. For instance, firms are benefiting from the on-demand services, which allow them to allocate their budgets efficiently as they are only using the specific services required to remain competitive and grow. Furthermore, data stored in the cloud can be accessible and usable from any device in every part of the world. This service has become an essential tool for the newly established trend of remote working.
The usual ‘suspects’
The latest earnings season provided indisputable evidence that digital transformation remains a key theme in markets, with cloud computing being the main driving force behind this development. The first hint came from Microsoft, whose revenue increased by 20% on an annual basis mainly due to its cloud service, Microsoft Azure, which grew by a massive 46% from the previous quarter. These figures suggest that Azure is constantly expanding its market share due to the wide variety of its Office suite’s products, while also operating with wide profit margins. In addition, what differentiates Microsoft from the broader tech sector is its dividend policy, registering 17 consecutive years of dividend growth. Dividends are generally appreciated by investors during inflationary periods.
Google and YouTube parent company Alphabet is also amongst the top cloud infrastructure service providers in the US. The company’s management anticipates that YouTube monetization should drive revenue growth in 2022, but Google's cloud segment would drive earnings growth, indicating cloud’s ability to improve the firms’ profit margins. What is unique about Google’s cloud is that it operates in a more sustainable environment compared to that of the most known clouds. The company plans on running its data centers with carbon-free energy by 2030, which apart from being the most viable long-term business plan, it could also sound attractive to investors tilting towards ESG investments.
![](https://www.xm.com/wp-content/uploads/2022/03/Stock-performance-for-Report.png)
Adobe could prove to be a secret gem
Adobe was originally an IT company but has now transformed into a leader in the cloud sector by adapting its large platform to the cloud era. In the last couple of years, Adobe has enhanced its cloud suite by acquiring small firms. For instance, Adobe took over a company called Marketo and Magneto to gain technical know-how in the use of cloud services in the e-commerce sector. Lately, it purchased Workfront to add workflow and project management solutions to its arsenal. These recent collaborations have bolstered Adobe’s growth prospects, which combined with the firm’s ability to generate cash flows, are enabling it to continuously expand and upgrade its cloud computing services.
![](https://www.xm.com/wp-content/uploads/2022/03/AdobeDaily.png)
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.