Cloud Computing Stocks on the Rise

Investing in the Cloud

To better track the market’s acceptance of cloud computing little more than a year ago, we chose six, different, cloud computing based companies, invested a fictional $1,000 in shares of each, and created a fantasy portfolio of cloud stocks. The results: through yesterday, this group of stocks combined to grow by more than 75 percent in little more than a year and outperformed the Dow Jones Industrial Average and Nasdaq by orders of magnitude.

Here’s a look at our make-believe cloud computing stocks, and thoughts on why they have been performing the way they have.

Google

We limited our cloud portfolio to a fictional $1,000 (approximately) of shares in each of six different companies. So when we chose Google, that meant we were held to a scant two shares. Between Nov. 27, 2009 and Jan. 19, 2011, though, Google shares were still up by 11.4 percent in value. Even for a relatively mature stock, double digit growth in its shares still beats bank interest.

Rackspace Hosting

Rackspace has been one of the most aggressive hosting providers in the world, fighting for both enterprise-based customers as well as individual, consumer-oriented customers. In addition to hosting infrastructure, Rackspace provides turnkey application solutions like hosted Microsoft SharePoint and web-based email services. It continues to add servers to its infrastructure at a rate of thousands per quarter, and investors have rewarded Rackspace’s tenacity by almost doubling its share price – pumping its value in our fake portfolio by more than 95 percent between Nov. 27, 2009 and Jan. 19, 2011.

Terremark Worldwide

The Miami, Fla.-based hosting company focuses on the big boys: its hundreds of customers include among the largest enterprises, including AT&T, Fujitsu, Google and even the San Francisco 49ers. With double-digit revenue growth and significant investment in its data center infrastructure over the past year, investors have driven its value up by a whopping 129 percent between Nov. 27, 2009 and Jan. 19, 2011. (Recently, though, some if its shares have pulled back as a few analysts have questioned its stock valuation.) Terremark holds the title of the best-performing cloud stock in this group.

Qwest Communications

Denver, Colo-based Qwest has been among the biggest players in the ISP space for a number of years, although its financial results and stock performance have waxed and waned over the years. Between Nov. 27, 2009 and Jan. 19, 2011, its stock in our fictional cloud portfolio grew by an impressive 87 percent. Qwest’s full lineup of offerings – including voice, video, data and Internet services – appear tailor-made for robust cloud applications. The market has been so bullish on Qwest and its strategic position, that its stock price continued to grow even though its most recent quarter reported a loss.

Equinix

Another big-enterprise data center hosting/co-location company, Equinix – like Terremark – has continued to invest hundreds of millions of dollars into its data center infrastructure.

But the Redwood City, Calif.-based company is actually the only company in our bag of stocks that saw the value of its shares decline over our tracking period, dropping by 8.4 percent. Equinix may have been victimized by its own numbers: while it’s recently reported year-over-year quarterly earnings growth of about 45 percent, its profit has declined by about 40 percent.

Salesforce.com

Arguably the best-known cloud application provider in business, Salesforce.com’s value in our portfolio has climbed by 124 percent between Nov. 27, 2009 and Jan. 19, 2011. Over the past two years, Salesforce.com has expanded well beyond its online CRM roots to include robust support for Lotus Notes-based applications and support for mobile devices, including iPhones, iPads and Android devices.