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Technology investors have their heads in the cloud these days.
Cloud computing, which supplies on-demand hosted services over the Internet, requires only that its clients have a computer and Internet access. It handles the functions traditionally performed by a firm's own in-house hardware and software.
The global cloud-computing market is expected to reach
A stumbling block, however, is concern over the security of data when a client firm can no longer control it on its own premises. Hackers and crashed systems are, after all, a company's worst nightmares.
And while the cloud is a definite boon to smaller firms, more established companies have already made significant investments in technology equipment and staffing. There is also confusion over what cloud computing really is and who provides it.
The field's successful pioneer and poster child is
Continuing to add applications as it also improves its existing service to nearly 100,000 clients,
"Cloud computing lets a company build scale very quickly without a lot of capital investment and maintenance costs, because you don't need an entire information technology department," said Ryan Issakainen, exchange-traded fund strategist with
His firm's new First Trust ISE Cloud Computing ETF (SKYY) has a stock portfolio of 40 companies, some of which might be considered risky as individual stock purchases. More than half of its holdings are "pure play" cloud computing firms, with the remainder being large technology conglomerates or cloud "enabler" firms providing support and software.
Examples of strong performing, pure plays in the portfolio include:
Provider of wireless networking equipment for large sprawling organizations, which permits secure access for employees wherever they work or roam. Its 14,000 customers include government, industry and universities. With its high profit margins and growth prospects, it could become a takeover target.
Software company focused on service-oriented tools such as business process management, is noted for strong technology, innovative new products and customer relationships. It has made key acquisitions and could be attractive as a candidate for an acquisition itself.
Provides data warehousing and analytics for global organizations through bundled software and hardware, was spun off from
"While the topic of cloud computing is not new, there still is a lot of confusion in the market because so many things called cloud computing really are not cloud computing at all," cautioned Holger Kisker, principal analyst with
Old-line, cash-rich technology giants that effectively incorporate the cloud concept will play a significant role and profit from it as well.
While the cloud threatens the desktop-based Office franchise of Microsoft (MSFT), the company's Azure cloud computing platform should help easily transition customers into this new technology, he said.
Among other tech mainstays, Kisker expects Google (GOOG) and
Experts say it is important to differentiate between the two distinct types of cloud.
"The 'private' cloud is the new term now being used for existing enterprise data centers," explained Sunit Gogia, senior equity analyst with
Issakainen, Kisker and Gogia all admire the success and stock potential of
"It takes some time to get used to having data being outside of a company's control," said Gogia. "But I do think that this model will gain more traction with larger enterprises over time."
In the long run, the money-saving aspect of cloud computing will spur its growth and provide profits for investors -- so long as security issues can be addressed.
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Investing - Investors Have Their Heads in Cloud Computing