Google Inc (GOOG), Cisco Systems, Inc. (CSCO): Cloud & IT, Where To Invest May Surprise You

Bill is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Cloud investing carries big risk. The median of 40 ISE index members sells for 25 times projected earnings for its current fiscal year, nearly double the S&P 500 index median.

Even so, it is not going away, and investors should research and make it a part of their investment strategy. Industry experts are projecting a huge increase this year in enterprise spending as companies look to migrate their networks further into the cloud.

Investors can buy into the index via an exchange-traded fund or an exchange-traded note. IDC, a tech research firm, estimates that revenue from public cloud services exceeded $30.5 billion in 2012, and will grow to a staggering $72.9 billion in 2015. This growth is approximately four times faster than the IT market as a whole.

Google Inc (NASDAQ:GOOG)

From search to cloud

In the past decade, Google Inc (NASDAQ:GOOG) has diversified from strictly search engines and ads into cloud computing services, mobile operating systems, and hardware. What’s more, Google Inc (NASDAQ:GOOG) ‘s various business areas are up against mostly anyone’s. Every story about cars that drive themselves, or Google Glasses that offer on-the-go augmented reality, reinforce the image of a company breaking new ground.

Google Inc (NASDAQ:GOOG) is the choice over other tech companies simply because of its anticipation of consumer trends and meeting the needs. Google Inc (NASDAQ:GOOG) Drive is the method it has chosen to offer consumers the ability to access their files anywhere. Consumers can use the drive with any existing Gmail username and it offers 5 GB of storage for free.

Google Drive recently implemented an impressive “Save to Drive” option, which allows users to instantly save files with a convenient, one-click button. Google Drive eliminates users resulting to the right-click save format and introduces a shortcut that permits quicker cloud uploads. Web developers can easily apply Google Drive on their own websites with two lines of HTML.

In the last month, Google Inc (NASDAQ:GOOG) has risen just under 1% and currently sits around $830. Based on its other financials, investors should definitely have Google Inc (NASDAQ:GOOG) in their portfolio.

Cisco Systems, Inc. (NASDAQ:CSCO)

Cisco Systems, Inc. (NASDAQ:CSCO) is best known for producing the software, switches, and routers that run corporate and communications data networks. But thanks to heavy spending on research and development, as well as certain acquisitions, Cisco Systems, Inc. (NASDAQ:CSCO) is well-positioned for industry leadership in mobile computing, cloud computing, video-delivery services, network security, web conferencing, and network storage.

Cisco Systems, Inc. (NASDAQ:CSCO) has put tremendous effort into ‘playing nice with others’. Cross technology compatibility is a key consideration when IT managers worry about the interoperability of various technology components in their corporate ecosystem.

The company has set an ambitious target of doubling the revenue it derives from software in the next five years. This, in turn, should lead to a rising take rate for its expanding suite of service offerings.

Taking a page out of the IBM playbook, the company is focusing on long-term service contracts for its software as well as cloud computing solutions. I see this leading to much smoother revenue and profit streams in the future. The company itself aims to boost service revenue from a current 21% of the sales mix to more than 25% within three years.

Cisco Systems, Inc. (NASDAQ:CSCO) partnered with McMaster University to create a cloud computing solution envisioned to aid in sharing medical research among university facilities. Cisco Systems, Inc. (NASDAQ:CSCO) serves as a liaison to manage research accessibility as technology progressively transforms research communication. The partnership attempts to adjust medical data management.

Oracle Corporation (NASDAQ:ORCL)

Oracle Corporation (NASDAQ:ORCL) has always been a silent success. With another solid quarter in the books for Oracle, the company is still finding it hard to dispel market concerns about its ability to fend off increased competition.

The company reported a 3% increase in revenue reaching $9.1 billion. Part of this was due to the software licenses and subscriptions which have performed exceptionally well — soaring 17% year-over-year.Oracle Corporation (NASDAQ:ORCL)’s strong cash position, deep market penetration, and innovative strategies put it on top.

Moreover, while other companies focus on offering a cloud computing product (which, stand alone, is seen by some as limiting), Oracle Corporation (NASDAQ:ORCL) offers support to other businesses through back-end, database structuring, and implementation. As it stands, there is no other name that ties in all of the cloud benefits and data analytics together as Oracle Corporation (NASDAQ:ORCL).

To deliver a hybrid cloud computing system, Oracle Corporation (NASDAQ:ORCL) partnered with Nimbula to better assist company management software development in private and public arenas. Oracle Corporation (NASDAQ:ORCL) proposes the new cloud system will assist business enterprises’ plans efficiently and simultaneously and maximize business sales in a simple and easily manageable format.

Microsoft Corporation (NASDAQ:MSFT)

Microsoft Corporation‘s (NASDAQ:MSFT) PC sales keep declining. Consumer demands have shifted the technology industry towards mobile devices. In fact, tablets are expected to grow by over 60%, smartphones by about 25% while PCs/laptops will remain flat at best, and at worst, drop drastically.

In addition to this dismal news, Windows 8 is not selling well. It was hoped that Windows 8 operating system would revitalize PC sales and help spark a new upgrade cycle. However, Windows 8 has failed to meet expectations as users have been somewhat confused with the new and unlabeled layout.

With all that, Microsoft Corporation (NASDAQ:MSFT) is still performing. This is because it spreads its software on multiple levels, diverse platforms, and has created its own option for access any time, any where. It’s hefty, ongoing investment in Office 365 — the online edition of its productivity suite — is a testament to how fast cloud computing services have caught on, and how the company plans to stay competitive.

The company recently posted strong quarter results. Its ‘Server & Tools’ division delivered $5.04 billion in revenue, an 11% increase that the company has credited to double-digit percentage revenue growth in SQL Server and System Center. The Business Division posted revenue of $6.32 billion, an 8% increase year-over-year. This is where Microsoft Corporation (NASDAQ:MSFT) should look to increase its ‘cloud coverage’ and make it more appealing to small to mid-sized businesses.

Conclusion

Companies that specialize in cloud services and infrastructure have seen big gains in sales and earnings in recent years. But, in spite of their impressive gains, cloud stocks are trading with nose-bleed valuations and priced for perfection, making them extremely vulnerable to bad news or weakness in the market. Investors can look with confidence in these four companies because all have stood the test of time, and all have positioned themselves for future profitability through cloud computing.

The article 4 Cloud Services & IT Stocks for Your Portfolio originally appeared on Fool.com and is written by Bill Edson.

Bill Edson has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and Google. The Motley Fool owns shares of Google, Microsoft, and Oracle..