Are Cloud Computing Stocks Overvalued?

Are Cloud Computing Stocks Overvalued?

Cloud Computing Stocks

If one were looking for lessons in creating wealth by investing in cloud computing stocks, there can be no better teacher than Warren Buffett. In fact, I would venture that he is the guru of value investing, a an investment paradigm that derives from the ideas on investment and speculation that Ben Graham and David Dodd derived while at Columbia Business School. Not surprisingly, Buffett was one of Graham’s students.


Value investing is investing for the long term; as Buffett once said, “My favorite holding period is forever.” Therefore, such a strategy is based on buying stocks at less than their intrinsic value. Do cloud computing stocks qualify as value stocks? That is a question that many are seeking an answer to.

The problem in realizing value of cloud computing stocks is the difficulty in assessing future earnings. Agreed that recent research indicates that spending on cloud computing stocks can only go higher and, but the very newness of the technology leaves room for doubt. There’s no telling whether security concerns can kill cloud computing or there may be a paradigm shift to a completely different technology.

While many truly believe that cloud computing is here to stay and that stocks of companies investing in this field represent true value for the future, there are others at the opposite end of spectrum who have even compared the recent rise of relevant stocks as symptomatic of, as Alan Greenspan put it, “irrational exuberance.”

If this phrase sounds familiar, there’s a good reason for it. Greenspan first uttered these words when anything related to technology was considered to be gold and tech stocks reached stratospheric heights. Until the bubble burst.

Yes, we are talking about the dotcom bubble of the last decade. If you feel this analogy is a bit far-fetched, consider what Swiss investment bank UBS has to say. In a recent research note, creatively titled Are We In A Cloud Computing Bubble?, UBS makes a comparative analysis between the top 40 expensive tech stocks today and in March 2000 when the dotcom bubble was at its zenith.

Top Cloud Computing Stocks

Although the top tech companies today are comparatively healthier than their dotcom era counterparts if P/E and market value/sales ratios are taken into account, their rapid ascent as compared to the other tech stocks does give cause for concern, especially since a lot of the top ones are invested in cloud computing – Salesforce.com, Netflix, Akamai, etc.

Now, this data can be interpreted in two ways. The cloud computing proponents would say that is exactly what they expect – that the stocks are rising because their cloud investments are adding value to their shares. The naysayers would protest that it is “irrational exuberance” that is fueling this growth, and that another tech bubble is in the offing.

While it is difficult to determine with absolute certainty who is right, I would bet my money on the former.

There are three reasons for this:

  1. P/E and market value/sales ratios have been used to determine stock value for a long time. They are reliable indicators and suggest that the recent price increases is not a fluke.
  2. While the dotcom bubble was born out of overestimating the value of technology that was completely new, cloud computing, in spite of its newness, has a long heritage. Many of the concepts of cloud computing – utility computing, distributed computing – and resources – data centers, Internet – are tried and tested technologies.
  3. The dotcom bubble came from every second computer engineer trying to become an entrepreneur. The cloud computing revolution, on the other hand, is largely driven by very big IT players like IBM, Amazon, Oracle, etc.

At the same time, I would advise caution if cloud computing stocks continue to rise at an alarming pace. There are still issues to be resolved before it becomes the definitive standard in IT.

By Sourya Biswas

Sorry, comments are closed for this post.

Comic
Digital Transformation: Not Just For Large Enterprises Anymore

Digital Transformation: Not Just For Large Enterprises Anymore

Digital Transformation Digital transformation is the acceleration of business activities, processes, and operational models to fully embrace the changes and opportunities of digital technologies. The concept is not new; we’ve been talking about it in one way or another for decades: paperless office, BYOD, user experience, consumerization of IT – all of these were stepping…

Why Security Practitioners Need To Apply The 80-20 Rules To Data Security

Why Security Practitioners Need To Apply The 80-20 Rules To Data Security

The 80-20 Rule For Security Practitioners  Everyday we learn about yet another egregious data security breach, exposure of customer data or misuse of data. It begs the question why in this 21st century, as a security industry we cannot seem to secure our most valuable data assets when technology has surpassed our expectations in other regards.…

How You Can Improve Customer Experience With Fast Data Analytics

How You Can Improve Customer Experience With Fast Data Analytics

Fast Data Analytics In today’s constantly connected world, customers expect more than ever before from the companies they do business with. With the emergence of big data, businesses have been able to better meet and exceed customer expectations thanks to analytics and data science. However, the role of data in your business’ success doesn’t end…

Three Factors For Choosing Your Long-term Cloud Strategy

Three Factors For Choosing Your Long-term Cloud Strategy

Choosing Your Long-term Cloud Strategy A few weeks ago I visited the global headquarters of a large multi-national company to discuss cloud strategy with the CIO. I arrived 30 minutes early and took a tour of the area where the marketing team showcased their award winning brands. I was impressed by the digital marketing strategy…

The Cancer Moonshot: Collaboration Is Key

The Cancer Moonshot: Collaboration Is Key

Cancer Moonshot In his final State of the Union address in January 2016, President Obama announced a new American “moonshot” effort: finding a cure for cancer. The term “moonshot” comes from one of America’s greatest achievements, the moon landing. If the scientific community can achieve that kind of feat, then surely it can rally around…

Three Ways To Secure The Enterprise Cloud

Three Ways To Secure The Enterprise Cloud

Secure The Enterprise Cloud Data is moving to the cloud. It is moving quickly and in enormous volumes. As this trend continues, more enterprise data will reside in the cloud and organizations will be faced with the challenge of entrusting even their most sensitive and critical data to a different security environment that comes with using…

Get Ready For Virtual Reality and the Cloud

Get Ready For Virtual Reality and the Cloud

Virtual Reality Cloud We’re lucky to live in an era where virtual reality is no longer relegated to the confines of a sci-fi movie universe. Thanks to technology introduced by products like Oculus Rift, consumers now have access to virtual environments with fully immersive graphic capabilities. As a result, companies have only just begun to…

Consequences Of Combining Off Premise Cloud Storage and Corporate Data

Consequences Of Combining Off Premise Cloud Storage and Corporate Data

Off Premise Corporate Data Storage Cloud storage is a broad term. It can encompass anything from on premise solutions, to file storage, disaster recovery and off premise options. To narrow the scope, I’ve dedicated the focus of today’s discussion to the more popular cloud storage services—such as Dropbox, Box, OneDrive—which are also known as hosted,…

Cloud Infographic – Guide To Small Business Cloud Computing

Cloud Infographic – Guide To Small Business Cloud Computing

Small Business Cloud Computing Trepidation is inherently attached to anything that involves change and especially if it involves new technologies. SMBs are incredibly vulnerable to this fear and rightfully so. The wrong security breach can incapacitate a small startup for good whereas larger enterprises can reboot their operations due to the financial stability of shareholders. Gordon Tan contributed an…

Driving Success: 6 Key Metrics For Every Recurring Revenue Business

Driving Success: 6 Key Metrics For Every Recurring Revenue Business

Recurring Revenue Business Metrics Recurring revenue is the secret sauce behind the explosive growth of powerhouses like Netflix and Uber. Unsurprisingly, recurring revenue is also quickly gaining ground in more traditional industries like healthcare and the automotive business. In fact, nearly half of U.S. businesses have adopted or are planning to adopt a recurring revenue model,…

12 Promising Business Intelligence (BI) Services For Your Company

12 Promising Business Intelligence (BI) Services For Your Company

12 Promising Business Intelligence (BI) Services Business Intelligence (BI) services have recently seen an explosion of innovation and choices for business owners and entrepreneurs. So many choices, in fact, that many companies aren’t sure which business intelligence company to use. To help offer you a solution, we’ve compiled a list of 12 Business Intelligence companies…

Cloud Infographic – The Data Scientist

Cloud Infographic – The Data Scientist

Data Scientist Report The amount of data in our world has been exploding in recent years. Managing big data has become an integral part of many businesses, generating billions of dollars of competitive innovations, productivity and job growth. Forecasting where the big data industry is going has become vital to corporate strategy. Enter the Data…

Protecting Your Web Applications In A Hybrid Cloud Environment

Protecting Your Web Applications In A Hybrid Cloud Environment

Protecting Your Web Applications It’s no secret that organizations are embracing the cloud and all the benefits that it entails. Whether its cost savings, increased flexibility or enhanced productivity – businesses around the world are leveraging the cloud to scale their business and better serve their customers. They are using a variety of cloud solutions…

Using Private Cloud Architecture For Multi-Tier Applications

Using Private Cloud Architecture For Multi-Tier Applications

Cloud Architecture These days, Multi-Tier Applications are the norm. From SharePoint’s front-end/back-end configuration, to LAMP-based websites using multiple servers to handle different functions, a multitude of apps require public and private-facing components to work in tandem. Placing these apps in entirely public-facing platforms and networks simplifies the process, but at the cost of security vulnerabilities. Locating everything…

Big Data’s Significant Role In Fintech

Big Data’s Significant Role In Fintech

Data Banking Fintech covers a range of financial fields such as retail banking, investments, and lending and thanks to the mobile and internet innovations of late is a thriving sector. Offering improvements which drive customer satisfaction and education in an area previously inscrutable and dictated by gigantic inflexible corporations, fintech is helping put the power…

Battle of the Clouds: Multi-Instance vs. Multi-Tenant

Battle of the Clouds: Multi-Instance vs. Multi-Tenant

Multi-Instance vs. Multi-Tenant The cloud is part of everything we do. It’s always there backing up our data, pictures, and videos. To many, the cloud is considered to be a newer technology. However, cloud services actually got their start in the late 90s when large companies used it as a way to centralize computing, storage,…

Infographic: 9 Things To Know About Business Intelligence (BI) Software

Infographic: 9 Things To Know About Business Intelligence (BI) Software

Business Intelligence (BI) Software  How does your company track its data? It’s a valuable resource—so much so that it’s known as Business Intelligence, or BI. But using it, integrating it into your daily processes, that can be significantly difficult. That’s why there’s software to help. But when it comes to software, there are lots of…

Cukes and the Cloud

Cukes and the Cloud

The Cloud, through bringing vast processing power to bear inexpensively, is enabling artificial intelligence. But, don’t think Skynet and the Terminator. Think cucumbers! Artificial Intelligence (A.I.) conjures up the images of vast cool intellects bent on our destruction or at best ignoring us the way we ignore ants. Reality is a lot different and much…