I always say that the road to wealth is paved with tech, and right now, that road is leading straight towards the cloud.
That’s because none other than Nasdaq Inc. (NDAQ), the tech-centric market itself is planning to move all of its market hosting, for all 28 of its markets, to the cloud, as reported by The Wall Street Journal.
And as we’ve seen from the COVID shutdowns, the $350 billion cloud computing sector is central to the modern digital economy.
In order to succeed, a company simply must be connected to the cloud throughout almost all of its operations.
With that in mind, it’s no wonder that Technavio predicts that the cloud computing sector will grow by $190.32 billion during the 2019-2023 period. At that rate, it would be set to double in less than a decade.
Today I’m going to reveal a great way to invest in this sector that is beating the broad market by 62%…
Paving the Road
Now then, it’s certainly quite ironic that Nasdaq is only now beginning its big move into the cloud.
I honestly thought the company best known for its stock exchange for cutting-edge stocks would have already moved its operations to the cloud.
Instead, it turns out they built their own systems and data centers, hosted on-site in their headquarters.
They’ve been quite slow to move online. So, when COVID hit, they were caught unprepared.
For example, in March Nasdaq’s messaging service sent and received twice as much data as the previous record. The company had already moved this service to the cloud, so expanding capacity was easy and automatic.
But the Nasdaq stock exchange was hosted in the company’s New York City headquarters, which were closed because of COVID.
When trading volumes spiked earlier this year, the company had to rush engineers into the building to manually add more servers.
It goes to show that basically, no one can afford to miss this massive shift to the digital economy.
The Nasdaq is now committed to moving most of its 28 markets online by 2025, and all of them by 2030.
I think that’s a conservative estimate. In the very near future, I believe all markets will reside in the cloud.
It’s difficult to exaggerate just how huge this will be.
All the ownership data, transactions, messages, and derivates for $61 trillion in stocks and nearly $100 trillion in fixed income securities will have to move online.
Cloud providers are going to see a boom in demand.
For retail tech investors, it can be difficult to pick the winners from the losers in this field.
There are hundreds of companies involved in the cloud. We’re talking everyone from the makers of the basic hardware and software that powers it all, to developers that provide businesses with cloud-based accounting, document signing, or other specialized functions.
But you don’t have to choose. The First Trust Cloud Computing ETF (SKYY) does it all for you.
This ETF has all the big names you’d expect, including Amazon.com Inc. (AMZN), Alphabet Inc. (GOOGL), and Microsoft Corp. (MSFT).
But SKYY also owns an intriguing mix of stocks that give us wide cloud exposure. Of the 63 stocks in the portfolio, about 71% are in cloud software while 11% make the hardware and gear the cloud runs on. Take a look:
- Fastly Inc. (FSLY) is the leader in the content delivery network (CDN) business. These are the invisible networks of servers that speed up the Internet by hosting the most popular content closer to consumers. Fastly’s CDN network also protects its clients, including Google, Microsoft, Slack Technologies Inc. (WORK), and many others from hackers, bots, and denial of service attacks. The Internet kept running during COVID to a large extent thanks to COVID, and revenues are booming.
- ServiceNow Inc. (NOW) provides full-service IT environments that unify everything from operations and asset management, to security and risk compliance, to developing apps in-house. Its clients include firms like healthcare giant AstraZeneca Plc (AZN), chip leader Broadcom Ltd. (AVGO), and consumer products titan Kimberly-Clark Corp. (KMB). Plus, Microsoft just adopted ServiceNow’s IT and employee experience products across the company and made ServiceNow a “key strategic partner” for its Azure cloud platform.
- SAP SE (SAP). The German juggernaut uses its sophisticated Hana platform to drive cloud sales, which are now at $21 billion. SAP is widening its focus from only the Fortune 1000 companies to the roughly 600,000 online firms operating in the U.S. SAP’s database software business also gives it a leg up in the Internet of Things market, which the firm is looking to use as a “Trojan Horse” into the cloud computing market.
- Veeva Systems Inc. (VEEV) is an aggressive, growth-centric provider of essential cloud computing services to the life sciences industry. It boasts some very large customers, including Big Pharma leaders AstraZeneca plc (AZN), Bayer AG (BAYRY), GlaxoSmithKline plc (GSK), and Novartis AG (NVS). Veeva also caters to cutting-edge biotechs like Karyopharm Therapeutics (KPTI), which has a market cap of $1.2 billion, and Clovis Oncology Inc. (CLVS), a $7 stock valued at just $615 million.
The cloud is so full of opportunities that targeting the best-of-breed companies in their respective fields will really pay off.
Investing on Autopilot
And that’s exactly what SKYY does. To put it simply, the fund’s managers are doing all the heavy lifting for us. They are the ones who are deep-diving into product lineups, the financials, and trends.
Then they pick the winners in each field.
We automatically get a screen of winners that downplay any Wall Street hype in favor of solid performers.
Please don’t underestimate the importance of this last item. When the markets are choppy as they have been in September, it can be difficult to focus on the long haul.
But with a winning ETF like SKYY, you can rest easy and ignore the daily headlines.
With this cloud ETF, you know you’re growing your wealth over the long haul, no matter what happens today.
Cheers and good investing,
— Michael A. Robinson