Cloud computing: An engine for globalization, innovation, and efficiency

Cloud computing is one of the undisputed megatrends of our time. The term is generally understood to encompass the digitization of computing resources. It enables access to data, applications, and computing power from anywhere in a matter of seconds. You can learn more about this topic here – and how you, as an investor, can participate in it.

Digitization is currently the main focus of many companies, from banks introducing new fintech apps, grocery retailers setting up e-commerce platforms, or car manufacturers automating their production lines. However, connecting everything into the so-called Internet of Things can only work if there is a reliable data backbone – the cloud – in which billions of bits of data, structured and unstructured, can be stored and analyzed. Cloud computing will continue to be the no. 1 trend in the digital age, and it will experience rapid growth. Cloud computing is an “enabling” technology insofar as it makes significant benefits possible, such as lower costs and a high degree of scalability, productivity, performance, and reliability. This megatrend offers investment opportunities in areas such as Software-as-a-Service, Infrastructure-as-a-Service, Platform-as-a-Service, and in related business areas such as security and data center equipment. While Amazon, Microsoft, and Google are clearly the industry giants, small and medium-sized companies also offer innovation and agility.

The pandemic has generated tailwind

The acceleration toward cloud computing was provided a further boost in 2020 by the pandemic-induced work-from-home trend. Suddenly, more and more people had to work from a home office, where they needed to be able to access their company’s IT infrastructure. If the infrastructure was now available in the cloud, employees could conveniently establish a secure network connection from home and not only access the required data, but also benefit from the speed and efficiency of the networked computing hardware as well. This means that a private laptop would not have to be replaced by a high-performance PC, but rather that, via the laptop, it is possible to access computing power that is in fact located in the cloud. Additional advantages include lower costs, greater flexibility, and higher speed.

Data and storage

It is therefore hardly surprising that the global cloud market is chalking up impressive rates of growth – which is likely to continue. Average annual growth of 29% is expected to continue, according to the forecast of the market researchers at Bitkom. This high potential can also be seen in the fact that for now, investments in cloud solutions only account for 5% of the USD 4.9 trillion spent globally on information technology. The well-known US tech giants Amazon, Microsoft, and Google positioned themselves in this market early on and are primarily active in the “data & storage” sub-area. Amazon Web Services, Microsoft Azure, and Google Cloud are leaders in the public cloud market.

Software & applications

While data storage is one of the most popular cloud solutions, other areas are just as noteworthy. The largest cloud segment is the area of Software-as-a-Service (SaaS), i.e. software that is made accessible via the cloud. This area of application is very diverse, and the market is correspondingly fragmented. Regardless of whether these software systems are for customer relationship management (CRM), marketing tools, or video software, providers exist that offer a cloud solution for everything. The big advantage: SaaS cannot be “Amazonified”, meaning that there are higher entry barriers for this market, and the established players benefit from recurring, predictable revenue streams.

Data centers, servers & virtualization

A city with a million inhabitants generates 200 million GB of data every day, according to statistics from US network specialist Cisco. The reason for this huge amount is the so-called "Internet of Things", i.e. the smart networking of household appliances, cars, and many other devices. For this high volume of data, sufficient cloud infrastructure must be in place – and this constitutes another major growth market.

Cloud security & performance

Reported over and over in the media, hackers attack systems and succeed in stealing sensitive data – or paralyzing entire systems. In mid-December, for instance, there was a significant cyber-attack on the IT service provider SolarWinds. Hackers managed to tamper with an update SolarWinds developed for its network management software. The “contaminated” update was then installed at many of the company’s customers around the world, resulting in the attackers infiltrating at least 18,000 government and private networks. Risks like this pose a serious challenge, which is why billions are being invested in cloud security. The winners emerging from this situation are the providers of the needed security solutions, among them the companies Tenable and Crowdstrike. Their shares rose more than 40% in value in December alone.

Vontobel Cloud-Computing Equity Index

The great potential of cloud computing could also create interesting opportunities for investors. For this purpose, Vontobel has issued tracker certificates based on the Vontobel Cloud Computing Equity Index. In this actively managed index, a bottom-up process is used to select equities in companies that are active in areas related to cloud computing, and offer promising solutions. This includes companies from the areas such as Software & Applications (e.g. Adobe, Saleforce.com), Data Centers, Servers & Virtualization (e.g. Cisco Systems, Intel), Cloud Security & Performance (e.g. Crowdstrike, Tenable), and Data & Storage (e.g. Alphabet, Amazon, Microsoft). Vontobel investment specialists analyze a wide variety of companies in order to include the potentially most promising shares in the index. The index is calculated as a performance index, i.e. dividends are reinvested net.

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