Is It Time to Short Cloud Computing Stocks?: NetSuite Inc. (N) and More

Hackers have taken a bigger interest in the cloud lately, and that’s bad news for investors in the publicly traded companies that operate there.

On Thursday, Zendesk, which provides an online platform for customer support, reported in a blog post that an intruder breached its servers and accessed data from three of its customers. Wired has since identified the victims as three social-network sites: Twitter, Tumblr, and Pinterest.

NetSuite Inc (NYSE:N)“We’re incredibly disappointed that this happened and are committed to doing everything we can to make certain it never happens again,” Zendesk CEO Mikkel Svane said in a blog post announcing the breach. “We’ve already taken steps to improve our procedures and will continue to build even more robust security systems.”

So far, Zendesk’s troubles haven’t done much to dampen enthusiasm for related public equity issues such as NetSuite Inc. (NYSE:N)salesforce.com, inc. (NYSE:CRM), and Workday Inc (NYSE:WDAY). Yet any one of them could be next.

Six years ago, hackers accessed one of Salesforce’s email databases and used the information to launch attacks against two of the company’s largest customers at that time: Automatic Data Processing (NASDAQ:ADP) and SunTrust Banks, Inc. (NYSE:STI). Both NetSuite and Workday list potential damage from a security breach among the major risk factors facing their businesses in SEC filings.

Should you stay out of these stocks, then? What about shorting them? All three merit just one star out of a possible five from the investors rating them in our Motley Fool CAPS database. Valuation, rather than security, tends to top their list of concerns.

All-Star stock picker buffalonate wrote: “This stock is drastically overvalued. Guaranteed to crash at some point in the near future. It is valued at $20 billion and struggles to make a profit most quarters. There is also a lot of insider selling.”

I’m less concerned about valuation because these and other cloud suppliers are disrupting a market worth hundreds of billions of dollars annually. Investing now to capture future revenue streams makes sense. Security is another matter. Software must first be trustworthy before it can be viable, which makes hackers’ increased appetite for cloud platforms a substantial risk.

The article Is It Time to Short Cloud Computing Stocks? originally appeared on Fool.com and is written by Tim Beyers.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of salesforce.com at the time of publication. Check out Tim’s Web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.The Motley Fool recommends Automatic Data Processing, Netsuite, and salesforce.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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