A new ISE Cloud Computing Index (SKYY) lumps 40 of the top pure play, non-pure play and hybrid cloud companies into a grand experiment that strives to double the index’s monthly return using leverage.
This is perhaps the surest sign yet, that cloud computing has now left Geek Central for Wall Street. And giants play in this index including VMware, whose software drives Virtual Internet enterprise cloud servers, and other more recognizable names such as Apple, IBM, Oracle and Cisco.
“But cloud investing carries big risk,” said The Wall Street Journal.
“The median of 40 ISE index members sells for 25 times projected earnings for its current fiscal year, nearly double the S&P 500 index median.”
EMC, the parent company to VMware mentioned above, is considered one of the key nuggets in the index, especially as demand for massive amounts of data surges upwards over the next few years. EMC trades at 15 times earnings while VMware trades at 44.
In a recent blog post we mentioned huge investments by IBM and SAP in cloud computing, which is catching the attention of Wall Street.
Even Warren Buffet is getting into the game with an $11 billion investment in IBM as this tech behemoth seeks to boost its cloud apparatus.
The ISE index is up broadly (for all indexes) about 277%, versus the S & P. Hopes are thus high the Cloud Index can emulate some of these returns.
The Cloud index is down since its recent debut, but it has outperformed individual tech companies such as Amazon and Apple.
A SEC filing for the SKYY Cloud Index highlights some key “cloud warnings” stating that it “involves other risks not associated with issuers in other industries.”
It also stipulated that:
- Companies in the cloud computing industry rely heavily on patent, copyright, trade secret and other intellectual property protection laws. Loss of these protections may cause certain companies in which the Fund invests to be unable to effectively continue operations.
- Cloud computing companies are also subject to frequent litigation regarding intellectual property rights and the costs of defending or pursuing such claims may be detrimental to the continued success of such companies or may require them to discontinue services that infringe upon the rights of others.
- The cloud computing market is characterized by rapidly changing technology,constantly evolving industry standards and frequent new product developments. An issuer’s inability to adapt to such advancements may affect the company’s ability to sustain its position in the market for cloud computing services.
These last three points illustrate why many pundits often label cloud computing a bubble, similar in nature to the housing boom in the United States. However, the benefits offered by cloud computing are genuinely driving down cost and complexity for IT departments, sometimes by as much as 60-70%
But, what do you think? — write your comments below!
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