With tariff, trust, and privacy troubles hitting big tech companies, is there anywhere for tech investors to run? Dan Gallagher writes at The Wall Street Journal that there is one piece of the tech sector that has so far avoided the issues plaguing the rest, the cloud. He writes:
A tech sector not exposed to tariffs, trade wars or domestic political scrutiny sounds almost too good to be true. At current valuations, it just might be.
Investors have embraced cloud-software stocks with gusto this year. A group of 50 “pure-play” software-as-a-service, or SaaS, vendors tracked by KeyBanc Capital Markets is up nearly 36% for the year to date. That is well ahead of any other tech subsector and notably above even the 23% gain for the S&P 500’s Software and Services Group, comprised mostly of larger, more traditional software vendors. The Nasdaq Composite, meanwhile, is up a little over 14% for the year after taking a heavy beating over the past month’s selloff, sparked by rising trade tensions with China.
Some enthusiasm is understandable. Unlike semiconductor businesses or hardware makers like Apple Inc., most cloud-software companies don’t depend on China as a manufacturing hub or an end market for their products. They also aren’t in the crosshairs of regulators in the way internet giants Facebook , Amazon.com and Google are.
SaaS companies are benefiting from a continued push by large corporations to shift more of their computing needs to the cloud. In a recent survey by Cowen, 71% of respondents said they expect “cloud migration” to boost their information-technology spending over the next 12 months. In an April report, Mark Moerdler of Bernstein wrote that the cloud’s addressable market is so large that vendors are “extremely well positioned to grow for the foreseeable future even in an economic downturn.”
Read more here.
Jeremy Jones, CFA
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