Software, Platform, Infrastructure, Analytics, and even I.T. as a Service

What is Cloud Computing? One of the rapidly growing areas in the world of technology today is something called “Cloud Computing”. Names like Amazon Web Services, Dropbox, Apple iCloud, Google Apps, IBM, Cisco, Rackspace, and VMware are just a few examples of companies and providers offering cloud computing services and virtualization. While the concept of cloud computing isn't new, it is an idea that's currently proving to be a real money-saver for large and small companies.

Investing in Cloud Computing Stocks

As individual investors we need to find areas of solid growth, choosing stocks wisely and attempting to get in early on a trend. Cloud computing has been discussed for the past few years as perhaps being the next serious growth trend in tech - and perhaps due to the US recession has had relatively slow progress and implementation. Now it seems like cloud computing may really leap forward in 2012 in both application and implementation. There are security issues to overcome for widespread enterprise adoption, but processing power, applications, analytics, monitoring, even IT itself -- are available as services that will change how many businesses operate.

What is Cloud Computing?

So what is cloud computing anyways? Cloud computing is essentially a service that provides computation, software, data access, or data storage to remote clients. Cloud computing makes knowledge of the physical location, configuration, or maintenance of the hardware or software that provide the actual services to clients irrelevant to the clients' concerns. The clients connect remotely through the Internet to the computers in the “cloud” that provides the service. After which, the service is used by the client through the Internet connection., for example, allows clients to connect through the Internet to Dropbox hard-drives and store or retrieve data, but the maintenance and security of the hard-drives is taken care of by the Dropbox service provider. The cloud computing service model frees the client from costs of having to maintain or upgrade their own computing hardware in order to access the same services cloud computing can provide for much cheaper.

Benefits of Cloud Computing

Cloud computing is becoming popular for the many cost-effective benefits it provides. From an investment standpoint, cloud computing is cheaper and possibly a more efficient use of resources. For instance, in a hypothetical business situation where different employees need a variety and range of computational power and applications, rather than buy each employee specific hardware/software catering to their individual needs, one may buy each employee general purpose hardware and utilize a cloud computing service capable of delivering both computation and software as a service. Amazon web services delivers computational cloud services (EC2), as well as storage services (S3), application deployment and management information in the “cloud” (Beanstalk), identity and access management for users accessing cloud services (IAM), and much more. 

Basically, cloud computing provides needed computing services for businesses at a lower investment cost in hardware and maintenance, with the added benefits of data centralization and location independence. Since cloud services are accessed through the internet, a client is able to obtain the information and computational power he/she requires without being tied down to a specific location. With all the advantages that cloud computing provides, it seems to be one of the more serious technological trends of recent years, and one that is here to stay. For individual investors, this is a field that warrants further research and investigation.

How to Invest in Cloud Computing Companies and Their Future Growth

Many of the most popular technology stocks of the last several years have launched cloud projects, research, or initiatives. You could simply buy Apple (ticker symbol: AAPL), Google (ticker symbol: GOOG), Microsoft (ticker symbol: MSFT), (ticker symbol: AMZN), Dell (ticker symbol: DELL), Oracle (ticker symbol: ORCL), or many other well known, established companies to have exposure to the cloud. However, to invest in companies that are more heavily invested in cloud services, data centers, architecture, and more -- you need to go to companies like RackSpace (ricker symbol: RAX), EMC Corp (ticker symbol: EMC); VMware (ticker symbol: VMW), and others. Still smaller companies are likely creating new innovations and providing possible takeover candidates as the cloud computing field grows and consolidates.

To be more diversified you could also invest in a basket of cloud stocks with the FirstTrust ISE Cloud Computing ETF (exchange traded fund), which trades under the ticker symbol SKYY. According to Morningstar as of 12/31/11, this $64.9 million dollar SKYY etf holds forty-one (41) cloud or cloud related stocks with about 35% of assets concentrated in the top ten holdings. It has an expense ratio of .60 percent. The top SKYY holdings in December 2011 were Akamai, Juniper, Google, RightNow, Netflix, Rackspace Hosting, Equinix, Cisco, NetApp, Open Text, F5 Networks, Teradata, and EMC Corp, SAP, and among others. As always, do your own research, and consult your own advisors before you commit risk capital to any investment.