When the coronavirus struck the globe and disrupted the way we live, eat, move, and work; employers, academic institutions and other organisations all looked for ways to keep their businesses afloat, and in contact with clients, employees, and team members as authorities imposed lockdowns and work from home directives to curb the spread of the deadly virus. The option was to move operations to cloud-based infrastructure; for those that had not yet incorporated cloud computing into their operations. While those that had already done so scaled up their operations.
With cloud computing becoming an increasingly important element in our day to day lives, companies that provide these services have posted tremendous growth over the last 18 months. Cloud computing giants Amazon.com (ticker: AMZN), Microsoft Corporation (ticker: MSFT), Zoom Video Communications (ticker: ZM), and Salesforce (ticker: CRM), among others, have all been beating analyst’s expectations in earnings quarter after quarter. Analysts expect this growth to continue even post-pandemic, as companies have now realised the importance of incorporating cloud computing into their operations.
According to Market Watch, there are 20 cloud Exchange-Traded Funds (ETFs) whose market data indicate that they will register the most growth in the next two years, and four of the five largest ETFs covering the cloud space are close to hitting record highs.
Analysts say that as more businesses move to the digital space, an increase in their sales might fuel their stock prices higher than what their earnings could do. The largest five of those that will experience the highest growth in sales throughout 2023 are listed below.
|ETF||Assets ($bil)||Expense ratio||Holdings||Strategy|
|First Trust Dow Jones Internet Index Fund FDN, +0.75%||$10.8||0.51%||42||Tracks a market-cap-weighted index of largest U.S. internet companies.|
|First Trust Cloud Computing ETF SKYY, 1.10%||$6.3||0.60%||65||Tracks an index of cloud companies, with holdings capped at 4.5%.|
|ARK Next Generation Internet ETF ARKW, 1.30%||$5.8||0.79%||46||Actively managed, holding shares of “companies its managers have identified as benefiting from an infrastructure shift away from hardware and software toward cloud and mobile,” according to FactSet.|
|Global X Cloud Computing ETF CLOU, 0.40%||$1.4||0.68%||36||Tracks a market cap-weighted global index of companies involved in cloud computing.|
|WisdomTree Cloud Computing Fund WCLD, 1.60%||$1.3||0.45%||57||Tracks an equal-weighted index of U.S. companies primarily focused on cloud software and services.|
If you are thinking about taking a broad approach for a long-term investment in cloud stocks, EFTs might just be your best bet.
According to data from FactSet, here is a comparison of total returns through August 4, 2021, along with those for the Standard and Poor Depositary Receipts (SPDR) S&P 500 ETF and the Invesco QQQ Trust. The SPDR S&P 500 trust, which is the largest fund globally, is an ETF that trades on the New York Securities Exchange (NYSE) Arca. The Invesco QQQ Trust tracks the Nasdaq-100 Index, which includes the 100 largest non-financial companies listed on the tech-heavy Nasdaq.
|ETF||Total return – 2021||Total return – 2020||Total return – 3 years||Total return – 5 years||Total return – 10 years|
|First Trust Dow Jones Internet Index Fund FDN, +0.75%||15%||53%||76%||213%||646%|
|First Trust Cloud Computing ETF SKYY, 1.10%||12%||58%||99%||233%||526%|
|ARK Next Generation Internet ETF ARKW, 1.30%||3%||157%||206%||620%||N/A|
|Global X Cloud Computing ETF CLOU, 0.40%||4%||77%||N/A||N/A||N/A|
|WisdomTree Cloud Computing Fund WCLD, 1.60%||9%||110%||N/A||N/A||N/A|
|SPDR S&P 500 ETF SPY, 0.42%||18%||18%||63%||123%||344%|
|Invesco QQQ Trust QQQ, 0.60%||17%||49%||109%||231%||650%|
It is worth noting that the ARK Next Generation Internet ETF (ticker: ARKW) is the only fund that is actively managed, and it is also the only one that holds Tesla’s stock. The automaker, which makes up 10.65% of ARKW’s portfolio, is considered a cloud company since it offers cloud-based services on top of providing software updates for its Electric Vehicles (EVs) over the internet. ARKW also holds stock for multinational mass media and entertainment conglomerate Walt Disney Co. (ticker: DIS). Although famously known for entertainment, Disney is considered a cloud company due to its Disney+ streaming service that is rapidly growing and has seen major movies released on to the service, which has brought the company a huge chunk of revenue.
The five cloud ETFs in the above list hold a combined 147 stocks. To come up with the 20 companies that are projected to have the highest sales growth in the next two years, analysts at Market Watch used consensus market data from FactSet for the next three years, then confined their analysis to 126 companies for which consensus sales estimates for FY2020, FY2021, FY2022, and FY2023 are available.
Here is the list for the 20 cloud companies with the highest estimated sales growth until FY2023.
|Company||Country||Est. sales – 2020||Est. sales – 2021||Est. sales – 2022||Est. sales – 2023||Projected three-year sales CAGR||Held by|
|Coinbase Global Inc. Class A COIN, 5.36%||U.S.||$1,277||$6,159||$5,629||$6,880||75.3%||ARKW|
|LendingClub Corp. LC, 0.07%||U.S.||$315||$748||$1,064||$1,251||58.4%||ARKW|
|Sea Ltd. ADR Class A SE, 4.53%||Singapore||$4,376||$8,577||$12,494||$16,359||55.2%||ARKW|
|Pinduoduo Inc. ADR Class A PDD, -0.25%||China||$9,096||$17,850||$25,008||$32,624||53.1%||ARKW|
|Snap Inc. Class A SNAP, 0.64%||U.S.||$2,507||$4,182||$6,174||$8,894||52.5%||FDN, ARKW|
|Kingsoft Cloud Holdings Ltd. ADR KC, -2.84%||China||$1,010||$1,526||$2,326||$3,515||51.5%||SKY|
|DraftKings Inc. Class A DKNG, 3.23%||U.S.||$639||$1,173||$1,625||$2,219||51.4%||ARKW|
|Zillow Group Inc. Class A ZG, 0.25%||U.S.||$3,340||$5,536||$7,953||$11,566||51.3%||FDN|
|Zillow Group Inc. Class C Z, 0.85%||U.S.||$3,340||$5,536||$7,953||$11,566||51.3%||FDN, ARKW|
|Skillz Inc. Class A SKLZ, 1.77%||U.S.||$230||$387||$554||$734||47.2%||ARKW|
|Teladoc Health Inc. TDOC, 2.14%||U.S.||$1,094||$2,012||$2,597||$3,292||44.4%||FDN, ARKW|
|MercadoLibre Inc. MELI, 14.82%||Argentina||$3,972||$6,676||$9,043||$11,877||44.1%||ARKW|
|Roku Inc. Class A ROKU, -3.65%||U.S.||$1,778||$2,819||$3,888||$5,164||42.7%||ARKW|
|Shopify Inc. Class A SHOP, -0.67%||Canada||$2,929||$4,617||$6,223||$8,447||42.3%||SKY, ARKW, CLOU, WCLD|
|CrowdStrike Holdings Inc. Class A CRWD, 0.24%||U.S.||$841||$1,321||$1,807||$2,388||41.6%||SKY, WCLD|
|Veracyte Inc. VCYT, 1.36%||U.S.||$117||$204||$263||$328||40.8%||ARKW|
|Pinterest Inc. Class A PINS, -0.03%||U.S.||$1,693||$2,619||$3,444||$4,622||39.8%||FDN|
|Tesla Inc. TSLA, 0.56%||U.S.||$31,536||$50,035||$68,401||$85,143||39.2%||ARKW|
|Adyen N.V. ADR ADYEY, +1.42%||Netherlands||$817||$1,142||$1,601||$2,197||39.0%||ARKW|
|Square Inc. Class A SQ, 6.38%||U.S.||$9,498||$18,951||$21,347||$25,077||38.2%||ARKW, WCLD|
|Okta Inc. Class A OKTA, 2.37%||U.S.||$814||$1,189||$1,642||$2,146||38.1%||FDN, ARKW, WCLD|
PS: Stock prices quoted in this article can change at any time. The information contained in this article is intended for educational purposes and is not to be considered as the sole basis for investment decisions.