A Comprehensive Guide to Cloud Computing ETFs

Cloud computing is seeing increasing usage globally as it enables data interoperability in a scalable and cost-efficient way through data collection, processing and analyzing. Read More...

The coronavirus outbreak is a major concern across the globe. However, amid the health crisis, industries including cloud computing have been thriving with majority of people working from home. Even though vaccine rollout has begun globally, demand for cloud computing is set to stay robust even beyond the pandemic.

Cloud computing and storage have empowered video conferencing, gaming, e-commerce shopping, remote project collaboration, online classes, editing, etc. It has also found applications in social networking, messaging apps and streaming services. Cloud computing is also supporting organizations in remotely processing a lot of information, developing and running key applications and services.

How is the Cloud Computing Industry Placed in 2021?

In the wake of the pandemic, cloud technology adoption is projected to witness robust growth in sectors where the work-from-home initiatives are helping sustain business functions. Notably, the global cloud computing market size is projected to rise from $371.4 billion in 2020 to $832.1 billion by 2025, at a CAGR of 17.5%, per a ResearchAndMarkets.com report.

Gartner has reportedly projected that the end-user spending on public cloud computing should increase 18.4% in 2021 globally to a total of $304.9 billion, up from an estimated $257.5 billion in 2020.

Integration of cloud computing with AI, big data and IoT will help businesses touch new levels of success in innovation. Going by a Forrester’s Predictions 2021 report, cloud will power the way companies adapt to the “new, unstable normal” in 2021. The global public cloud infrastructure market is projected to expand 35% to $120 billion in 2021. It is also believed that cloud computing will help companies globally accelerate recovery in 2021.

Another reason for the cloud computing market optimism is the uncertainty surrounding the coronavirus outbreak, which has led to ambiguity regarding the duration of the work from home orders imposed by corporations. Notably, Global Workplace Analytics has predicted in a report that by the end of 2021, 25-30% of the workforce is set to work from home for multiple days a week.

Furthermore, Gartner projects an increase in the adoption of cloud computing technology as a proportion of IT spending after the pandemic. Cloud is estimated to comprise 14.2% of the total global enterprise IT spending market by 2024 compared to 9.1% in 2020. Meanwhile, International Data Corporation (“IDC”) predicted in a report that by 2021-end, 80% of enterprises would implement “a mechanism in place to shift to cloud-centric infrastructure and applications twice as fast as before the pandemic.”

The shift to digitization is set to remain robust even after the pandemic, keeping companies dependent on cloud-based services to drive that change. Strengthening the demand, the work-form-home trend is expected to remain that might evolve into a hybrid model in the post-pandemic period.

Major Players Widening Cloud Computing Suite

Recent earnings results of Amazon AMZN, Microsoft MSFT and Google-parent Alphabet GOOG benefited from the surge in their cloud-computing businesses. Amazon’s robust cloud services portfolio is helping it gain customers. PGA TOUR — commonly known as TOUR — recently selected Amazon Web Services (“AWS”) as its official cloud provider. This highlights the efficiency and reliability of AWS’ innovative cloud products and services.

Additionally, a growing clientele will continue to drive top-line growth of AWS, which has become an integral part of Amazon. In fourth-quarter 2020, AWS generated $12.7 billion in revenues (10% of total revenues), which rose 28% year over year.

Meanwhile, Alphabet is gaining market share in the cloud-computing, driven by continued strength in Google Cloud Platform and G Suite offerings. The company has signed many partnerships and has been opening data centers to expand its cloud footprint worldwide. Alphabet and Cisco announced a partnership per which the duo will deliver an open hybrid cloud solution. Notably, Google Cloud fourth-quarter 2020 revenues grew 46.6% year over year to $3.8 billion, accounting for 6.7% of the quarterly revenues.

Microsoft is also progressing in the cloud computing market. Through Azure, it offers cloud-based solutions that provide customers with software, services, platforms and content. In fact, Azure’s revenues, surged 50% year over year (up 48% at constant currency), driven by robust growth in consumption-based business and recovery across industries in second-quarter fiscal 2021.

Cloud Computing ETFs to Keep Soaring

Here we highlight some ETFs that can gain from the growing demand for cloud computing:

First Trust Cloud Computing ETF SKYY

The fund seeks investment results that correspond generally to the price and yield, before fees and expenses, of the ISE Cloud Computing Index. It tracks the performance of companies actively involved in the cloud computing industry. The fund holds about 65 securities in its basket, with Amazon, Microsoft, Oracle ORCL and Google-parent Alphabet holding positions in the top 10 holdings. It has AUM of $6.17 billion and an expense ratio of 0.60% (read: 5 ETF Investing Areas for March to Boost Returns).

Global X Cloud Computing ETF CLOU

The fund seeks to invest in companies positioned to benefit from the increased adoption of cloud computing technology, including companies whose principal business involves offering computing Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), Infrastructure-as-a-Service (IaaS), managed server storage space and data-center real estate investment trusts, and/or cloud and edge computing infrastructure and hardware. The fund holds about 36 securities in its basket, having pure-play cloud companies like Zscaler (ZS) and Shopify (SHOP) holding positions among the top five spots. It has AUM of $1.41 billion and an expense ratio of 0.68% (read: Can Cloud Computing ETFs Keep Soaring?).

WisdomTree Cloud Computing ETF WCLD

The fund seeks to track the price and yield performance, before fees and expenses, of the BVP Nasdaq Emerging Cloud Index, an equally weighted Index designed to measure the performance of emerging public companies focused on delivering cloud-based software to customers. The fund holds about 37 securities in its basket, with Everbridge Inc (EVBG), Wix.Com Ltd (WIX) and Box Inc – Class A (BOX) holding the top positions. It has AUM of $1.21 billion and an expense ratio of 0.45% (read: 5 Red-Hot ETFs to Gift Your Loved Ones).

Wedbush ETFMG Global Cloud Technology ETF IVES

The fund is designed to provide access to the cloud infrastructure and cloud “enabler” companies, expected to drive the next 10 years of an estimated $1 trillion in cloud spending. It seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Dan Ives Global Cloud Technology Prime Index. The fund holds about 67 securities in its basket. It has AUM of $56.3 million and an expense ratio of 0.68% (read: Big Tech, Tesla & Cloud Computing ETFs).