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Should You Buy Pureplay Cloud ETFs Instead of Single Stock Picking?
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The could business is becoming very crucial with the emergence of generative artificial intelligence (AI), because more companies have been resorting to the public cloud to run hefty workloads. Initially focused on storage and compute resource pooling, cloud computing has evolved to offer advanced services like serverless architectures, edge computing, and integrated AI/ML platforms.
Integration with cloud computing could revolutionize data processing and AI capabilities. Blockchain and AI integration with cloud technologies might lead to more secure, decentralized applications. Three big tech companies – Microsoft, Alphabet and Amazon – are at the forefront on the cloud and AI business. But the latest earnings releases show that the cloud growth has been uneven for these biggies.
Microsoft: Cloud Growth Beats Expectations
Microsoft has witnessed faster cloud growth and optimistic revenue forecast. The company’s Azure cloud revenue growth gained momentum after two years of deceleration. Microsoft’s Intelligent Cloud segment generated $24.26 billion in revenue, up 19% and above the $23.49 billion consensus among analysts surveyed by StreetAccount.
Revenue from Azure surged 29% during the quarter, higher than the 26% consensus among analysts that CNBC and StreetAccount polled. At constant currency, Azure revenue rose 28%, accelerating from 27% in the fiscal fourth quarter.
Alphabet Falls Short on Cloud Growth
Alphabet also reported earnings on Oct 24 after market closed. The stock fell about 6% in extended trading as cloud revenue disappointed. Cloud revenue came in below estimates at $8.41 billion, missing the Zacks Consensus Estimate of $8.54 billion.
Even though the unit disappointed, cloud still grew 22% year over year, marking the double the rate of expansion for the company as a whole. Alphabet’s cloud business also swung to an operating profit of $266 million after losing $440 million in the same period a year earlier.
Amazon’s Cloud Group Misses on Top Line
Amazon’s cloud group, i.e., Amazon Web Services (AWS) widened its operating profit margin, delivering higher operating income than expected, but revenues lagged the consensus estimate. The AWS operating margin grew to 30.3%, the widest in two years, per CNBC.
During the quarter, Amazon agreed to a big investment in artificial intelligence startup Anthropic, which will work with various Amazon cloud services. Net sales from AWS came in at $23.06 billion, missing the Zacks Consensus Estimate of $23.19 billion. Still, the market now perceives Amazon as more of a cloud and generative AI company, says Needham’s Laura Martin, as quoted on CNBC.
IBM Sees Strong Demand for Cloud
The company witnessed healthy demand for hybrid cloud and AI solutions with a client-focused portfolio and broad-based growth. The Software segment revenues of $6.27 billion exceeded our estimate of $6.16 billion owing to solid hybrid cloud traction.
Should You Buy Pureplay Cloud ETFs?
As investments in cloud computing and its contribution to the AI emergence has been rampant among tech companies, cloud investing could be an intriguing idea. But then, there are lot of players in the market, apart form the above-mentioned big tech companies. And the ETF approach allows investors to get an exposure to those companies too. Plus, an uneven growth trajectory among the players makes it more important to rely on the basket approach.
The underlying Indxx Global Cloud Computing Index provides exposure to exchange-listed companies in developed and emerging markets that are positioned to benefit from the increased adoption of cloud computing technology. Zscaler (5.97%), Freshworks (4.93%) and Qualys (4.61%) are the top three holdings of the fund. The Zacks Rank #1 (Strong Buy) fund charges 68 bps in fees.
The underlying BVP Nasdaq Emerging Cloud Index is an equally weighted Index, designed to measure the performance of emerging public companies focused on delivering cloud-based software to customers. No stock accounts for more than 1.91% of this 71-stock ETF. The Zacks Rank #1 ETF charges 45 bps in fees.
The underlying Fidelity Cloud Computing Index reflects the performance of a global universe of companies across the market capitalization spectrum that provide products or services enabling the increased adoption of cloud computing, characterized by the delivery of computing services over the internet. Servicenow (4.80%), SAP (4.65%) and Salesforce (4.55%) hold top three positions in the fund. The fund FCLD charges 39 bps in fees.
The underlying ISE Cloud Computing Index is a modified market capitalization weighted index designed to track the performance of companies actively involved in the cloud computing industry. The Zacks Rank #2 (Buy) ETF charges 60 bps in fees. Pure Storage (4.82%), Arista Networks (4.10%) and Nutanix (4.06%) are the top three holdings.
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Should You Buy Pureplay Cloud ETFs Instead of Single Stock Picking?
The could business is becoming very crucial with the emergence of generative artificial intelligence (AI), because more companies have been resorting to the public cloud to run hefty workloads. Initially focused on storage and compute resource pooling, cloud computing has evolved to offer advanced services like serverless architectures, edge computing, and integrated AI/ML platforms.
Integration with cloud computing could revolutionize data processing and AI capabilities. Blockchain and AI integration with cloud technologies might lead to more secure, decentralized applications. Three big tech companies – Microsoft, Alphabet and Amazon – are at the forefront on the cloud and AI business. But the latest earnings releases show that the cloud growth has been uneven for these biggies.
Microsoft: Cloud Growth Beats Expectations
Microsoft has witnessed faster cloud growth and optimistic revenue forecast. The company’s Azure cloud revenue growth gained momentum after two years of deceleration. Microsoft’s Intelligent Cloud segment generated $24.26 billion in revenue, up 19% and above the $23.49 billion consensus among analysts surveyed by StreetAccount.
Revenue from Azure surged 29% during the quarter, higher than the 26% consensus among analysts that CNBC and StreetAccount polled. At constant currency, Azure revenue rose 28%, accelerating from 27% in the fiscal fourth quarter.
Alphabet Falls Short on Cloud Growth
Alphabet also reported earnings on Oct 24 after market closed. The stock fell about 6% in extended trading as cloud revenue disappointed. Cloud revenue came in below estimates at $8.41 billion, missing the Zacks Consensus Estimate of $8.54 billion.
Even though the unit disappointed, cloud still grew 22% year over year, marking the double the rate of expansion for the company as a whole. Alphabet’s cloud business also swung to an operating profit of $266 million after losing $440 million in the same period a year earlier.
Amazon’s Cloud Group Misses on Top Line
Amazon’s cloud group, i.e., Amazon Web Services (AWS) widened its operating profit margin, delivering higher operating income than expected, but revenues lagged the consensus estimate. The AWS operating margin grew to 30.3%, the widest in two years, per CNBC.
During the quarter, Amazon agreed to a big investment in artificial intelligence startup Anthropic, which will work with various Amazon cloud services. Net sales from AWS came in at $23.06 billion, missing the Zacks Consensus Estimate of $23.19 billion. Still, the market now perceives Amazon as more of a cloud and generative AI company, says Needham’s Laura Martin, as quoted on CNBC.
IBM Sees Strong Demand for Cloud
The company witnessed healthy demand for hybrid cloud and AI solutions with a client-focused portfolio and broad-based growth. The Software segment revenues of $6.27 billion exceeded our estimate of $6.16 billion owing to solid hybrid cloud traction.
Should You Buy Pureplay Cloud ETFs?
As investments in cloud computing and its contribution to the AI emergence has been rampant among tech companies, cloud investing could be an intriguing idea. But then, there are lot of players in the market, apart form the above-mentioned big tech companies. And the ETF approach allows investors to get an exposure to those companies too. Plus, an uneven growth trajectory among the players makes it more important to rely on the basket approach.
ETFs in Focus
Global X Cloud Computing ETF CLOU
The underlying Indxx Global Cloud Computing Index provides exposure to exchange-listed companies in developed and emerging markets that are positioned to benefit from the increased adoption of cloud computing technology. Zscaler (5.97%), Freshworks (4.93%) and Qualys (4.61%) are the top three holdings of the fund. The Zacks Rank #1 (Strong Buy) fund charges 68 bps in fees.
WisdomTree Cloud Computing Fund (WCLD - Free Report)
The underlying BVP Nasdaq Emerging Cloud Index is an equally weighted Index, designed to measure the performance of emerging public companies focused on delivering cloud-based software to customers. No stock accounts for more than 1.91% of this 71-stock ETF. The Zacks Rank #1 ETF charges 45 bps in fees.
Fidelity Cloud Computing ETF (FCLD - Free Report)
The underlying Fidelity Cloud Computing Index reflects the performance of a global universe of companies across the market capitalization spectrum that provide products or services enabling the increased adoption of cloud computing, characterized by the delivery of computing services over the internet. Servicenow (4.80%), SAP (4.65%) and Salesforce (4.55%) hold top three positions in the fund. The fund FCLD charges 39 bps in fees.
First Trust Cloud Computing ETF (SKYY - Free Report)
The underlying ISE Cloud Computing Index is a modified market capitalization weighted index designed to track the performance of companies actively involved in the cloud computing industry. The Zacks Rank #2 (Buy) ETF charges 60 bps in fees. Pure Storage (4.82%), Arista Networks (4.10%) and Nutanix (4.06%) are the top three holdings.