Due to the strong demand for cheap software, cloud computing companies are enjoying great market momentum. This has attracted hundreds of competitors, from start-ups to traditional tech giants. At least 13 new players have gone public in the last 18 months, with most of them surpassing the $1 billion market cap milestone in a few months. But only cloud companies that innovate their product portfolio constantly, and build economic moats, will be able to survive the competitive landscape.
Some of the other big players investors might want to start with are grouped below.
Networking [Read descriptions for all companies mentioned]
1. Cisco Systems, Inc. (CSCO, Earnings, Analysts, Financials): The networking giant grew through acquisitions. The company is turning its focus on SDN. UBS argued that innovation in hardware will happen through SDN. Performance, latency, and resiliency are elements that will improve.
Cloud computing supported virtualization initiatives, since hardware and storage became very inexpensive. A leader in this field:
2. VMware, Inc. (VMW, Earnings, Analysts, Financials): Valued with a POP (price of profit) of 34 at the time of writing, shares dipped sharply below $100 after issuing a profit warning at the beginning of 2013.
In the software services industry:
3. Amazon.com Inc. (AMZN, Earnings, Analysts, Financials): The book retailer, which now sells practically everything for consumers, also sells AWS (Amazon Web Services). This allows companies ranging from all sizes (small to large) to rent hosted computing and storage. The company is extending its reach by bundling content through Amazon Prime, and reaching more users by selling tablet device hardware almost at-cost.
4. Salesforce.com (CRM, Earnings, Analysts, Financials): The high price of shares of Salesforce.com is supported by quarterly results that pleased investors. Last quarter (Q4), the company won many large deals. Deals between 7- and 8-figures rose by 50% compared to last year. The company plans to acquire companies aggressively. This will add to the already 3 million apps developed on Heroku and on the force.com site.
5. Oracle Corporation (ORCL, Earnings, Analysts, Financials): benefits from the growth in cloud demand, although the most recent quarter was disappointing. Oracle experienced a drop in hardware product sales, which dropped 23% from last year. The company is introducing SPARC M5 and T5 servers, which the company claims is 10x faster than older models.
6. International Business Machines Corp. (IBM, Earnings, Analysts, Financials): Big Blue benefits from selling consulting services for cloud solutions. IBM also makes Power 780 servers that compete with those offered by Oracle.
Computer Associates Technologies (NASDAQ: CA ) , Amazon.com (NASDAQ: AMZN ) , and NetSuite (NYSE: N ) are the best-performing stocks year to date in the cloud computing index. What makes each of these three companies special? How did they manage to build strong economic moats in a fierce landscape? More importantly, after experiencing more than a 40% increase in stock price, can they still be considered attractive investment opportunities?