The coronavirus pandemic has pressured nearly every corner of the global economy, but analysts continue to see sunny days ahead for cloud computing and the ecosystem that surrounds the technology.
The sub-sector is seen as a rare bright spot in the current environment, particularly as the outbreak pushes more people to work remotely, contributing to a long-term trend of rising demand. The boost is expected to be broad based, helping software companies, communication firms and chip makers that focus on data centre products.
“The lasting impact of Covid-19 could actually be a net positive,” wrote Richard Baldry, an analyst at Roth Capital Partners. Cloud-based communication companies “should see increased customer activity, at least once operational bandwidth returns to a somewhat more normal level for prospects”. He listed Five9, Medallia, eGain and LivePerson as names that could see stronger demand and which were trading at valuations he views as attractive.
So far this year, the Global X Cloud Computing ETF — an exchange-traded fund that tracks an index of companies involved in the space — is down 6.4%. A different ETF, the First Trust Cloud Computing ETF, is down 9.2%. Both have outperformed the S&P 500’s drop of more than 15% over the same period.
According to Wedbush, the pandemic has thrown “sales cycles, procurement/IT departments and budgets into a tornado-like state of chaos”, resulting in unprecedented risks to IT spending. Even in this environment, analyst Daniel Ives wrote, “cloud remains a theme”; he expects US$1-trillion to be spent on cloud computing over the coming decade.
‘Rock of Gibraltar’
Ives named Microsoft as “the Rock of Gibraltar cloud stock to own”, but said the trend would also support the cloud computing businesses of both Amazon and Google.
Earlier this week, Bank of America referred to cloud-focused chip makers as a “shining house in a tough neighbourhood”, referring to the headwinds facing other areas of the industry. Analyst Vivek Arya expects cloud capex to rise 13% in 2020. While this is down from a prior view of 16% growth — the lower estimate reflects “the most current Covid-19 headwinds” — it represents a “robust acceleration” from 2019, when capex grew just 3.5%.
The firm listed Broadcom, Nvidia, AMD, Marvell Technology and Intel among the chip makers most exposed to this trend. Nvidia has been one of the rare semiconductor gainers this year, and analysts have pointed to its data centre business as a tailwind. — Reported by Ryan Vlastelica, (c) 2020 Bloomberg LP
