As the financial world frets over interest rates, recession, and more, your editor wrote six months ago ago that “there’s no recession here, not even close.”
We weren’t talking about the overall economy though. Malaise and more malaise is a reasonable economic forecast.
No, we were talking about one of the biggest changes sweeping through the tech world for more than a decade...and still growing fast.
It’s a change which, if you’re reading this right now, you’re already deeply involved in whether you realize it or not.
And, as we saw last week, that original forecast is proving highly accurate and lucrative.
But again, most investors will miss out on it all and what it really says about the next multi-trillion dollar investment opportunity for investors.
Amazon’s Dirty Little Secret
The major tech trend we were talking about is simply known as the cloud.
It’s cloud computing where data, software and increasingly processing power are all remote from the user.
The cloud has been coming for years. It’s been mainstream for I’d say about 10 years now. And it’s still delivering massive gains to investors.
Just look at last week’s biggest winners.
Alphabet (GOOG), parent company of Google, trounced earnings estimates. Its shares soared 9% on their way to new all-time highs thanks in large part to it’s cloud services segment.
Although a bit behind in the cloud race at the beginning, Microsoft (MSFT) has parlayed some sizeable acquisitions into a large footprint in the cloud services world. The software giant’s standout segment in its latest quarterly report was its cloud division.
Microsoft shares soared to new all-time highs following its stellar, cloud-driven earnings report last week too.
Lastly there’s Amazon (AMZN).
Most folks don’t realize this, but Amazon makes next to nothing from it’s massive retail business.
In fact, Amazon has lost money fairly consistently since it first went public in the tech bubble days.
It’s prices on books, banana slicers, and everything else you could imagine really can’t be beat. That’s because they are usually at a loss once overhead and shipping are added in.
However, Amazon actually posted a net profit of 17 cents per share in the last quarter. It shares jumped from about $550 a share to more than $600 on the news, another new all-time high.
Most of those earnings came from it’s high-margin cloud computing segment, Amazon Web Services.
All of these successes are driven simply by the cloud. The cloud is cheaper, more convenient, and is clearly the now and the future of the Internet world.
It’s creating a huge divide between the winners and losers too.
A few big tech companies which didn’t move into the cloud early enough are getting left behind. Think of tech heavyweights like IBM, HP, and EMC.
Their shares reflect that too.
The S&P 500 is up 0.5% for the year so far. Alphabet, Microsoft, and Amazon are up 15%, 36%, and 96% respectively. IBM, HP, and EMC, who missed out on the cloud boom, are down an average of 12% each on the year.
The key to all this and the reason we’re talking about the cloud years after it has gone mainstream is because of the reason it’s driving these stocks to soaring heights.
The reason is as simple as it gets - huge and consistent revenue growth.
The chart below, which we’ve featured before here in the Profit Alert, really says it all:
Between 2011 and the 2017 cloud computing spending will grow at an annualized rate of 31% per year.
That’s the kind of massive growth it took for the cloud-dominating companies to buck the overall market headwinds and deliver big.
More importantly, it shows how the big trends are simple and easy to catch, and can make you a fortune by just riding them for a few years.
The NEXT Great Tech Rush...
As we said before, the cloud’s time in the center of the financial and tech worlds is likely in decline.
If you look at the chart again, the 31% annualized growth comes from over five year period. The growth in 2011 is twice as high as it will be in 2017.
That’s going to be a major problem for cloud-reliant companies then.
And when it slows and the blowout earnings from the likes of Amazon with a P/E ratio of 860 (eek!) slow too...well, let’s just say you know it won’t end well.
That’s the bad news.
The good news is this is tech sector, so there’s always something big and new coming. Always.
And that’s where you’ll be wanting to be putting your money now.
After all, the success of the “Big Cloud” stocks have proven, if the growth is big enough, the general market direction just doesn’t matter much.
When we get together next, I’ll show you the next big tech trend. You’ll like it. The way the numbers are looking, we’re looking at something two or three times bigger than the cloud too.
It’s big. Real big.
Bill will be back tomorrow and then we’ll get into this on Thursday.