11 Best Publicly Traded Cloud Computing Companies

The technology sector never stops growing and the 11 best publicly traded cloud computing companies are at the forefront of that technological revolution, finding new ways to improve the ease of life and business. The cloud industry has been gaining ground in the last decade or so, becoming a major disruptor to other industries in the process. However, because cloud computing is still young, most analysts and experts project that it will continue growing at a fast pace for at least the next three years. IDC estimates that worldwide spending on public cloud computing will surge to $162 billion in 2020 from $82 billion in 2016, resulting in a CAGR of 19%. Gartner meanwhile predicts that the worldwide cloud services market will grow to $246.8 billion this year from $209.2 billion in 2016 and will reach $383.36 billion in 2020.

When it comes to cloud computing, there are three main segments: Software-as-a-Service (SaaS), Infrastructure-as-a-Service (IaaS), and Platform-as-a-Service (PaaS). Among these, the largest is SaaS because it not only caters to businesses, but also represents the basis of the business model of many software companies (Dropbox, Office365, Google Docs, etc.). In addition, SaaS has become the main delivery model for a lot of business applications, especially in customer relationship management (CRM), which is the largest market for SaaS. Gartner estimates that the SaaS market will reach $75.73 billion in 2020, followed by IaaS, which will reach $71.55 billion.

The surge of cloud computing and fast adoption rates have prompted the launch of many cloud computing companies. However, only large tech companies had the resources to invest heavily in the new industry and to capture leading market shares. In this way, Amazon.com, Inc. (NASDAQ:AMZN)‘s Amazon Web Services and Microsoft Corporation (NASDAQ:MSFT) are currently occupying the top positions, with adoption rates of 59% and 43%, respectively, based on a survey conducted by RightScale. Alphabet Inc (NASDAQ:GOOGL), International Business Machines Corp (NASDAQ:IBM), and Oracle Corporation (NYSE:ORCL) are also among the leaders, but with much smaller adoption rates. The trends are expected to remain unchanged over the next three years, with Amazon and Microsoft still leading the market.

The introduction of cloud computing has not only provided a lot of benefits for businesses and households, but also opened new opportunities for investors. Because of the fast growth registered by the industry, early investors got the chance to ride the wave to high profits. However, because of the current domination by a few large enterprises, the industry has started to consolidate. There has been a lot of M&A activity in the space, such as IBM’s acquisition of Blue Box and Cleversafe. As the consolidation is expected to continue, it is expected that the industry will narrow, with major providers solidifying their lead, while other companies will either be absorbed or will be forced to change their focus or exit the market altogether. To see some of this consolidation in action, check out our list of the 10 Biggest Cloud Computing Companies in the World.

In turn, this raises a question for investors: what are the best cloud computing companies to invest in? One way to answer that question is to follow large investors like hedge funds and see which cloud providers they choose to put their money in. Hedge funds usually either invest in companies that they expect to perform well over the long run, or are looking for signs that these companies have the potential to generate shareholder value through becoming acquisition targets.

Here’s where our research can be useful. We track over 700 of the most successful hedge funds ever in our database and identify only their best stock picks. Our flagship strategy has gained 44% since February 2016 and our stock picks released in the middle of February 2017 gained over 5 percentage points in the three months that followed. Our latest stock picks were released last month, which investors can gain access to by becoming a subscriber to Insider Monkey’s premium newsletters.

Having said that, let’s proceed with a look at the 11 best publicly traded cloud computing companies based on the sentiment among the 676 hedge funds in our database which filed 13Fs for the first quarter.

11. Centurylink Inc (NYSE:CTL)

In Centurylink Inc (NYSE:CTL), 27 funds tracked by us held $4.44 million worth of stock heading into the second quarter, slightly up from 25 funds a quarter earlier. Centurylink is a telecom company, but since 2011, it has executed a number of acquisitions to position itself as a cloud computing company. It acquired AppFrog, a PaaS provider, Tier3, an IaaS platform and cloud management company, and Cognilytics, a big data solutions provider. Nevertheless, despite its efforts to succeed in the cloud space, it’s unlikely to match big rivals like Microsoft and Amazon. In any case, the stock seems like a good investment, sporting a dividend yield of over 8%. In addition, Keith Meister of Corvex Capital pitched the stock at the recent Ira Sohn Conference, saying that it has potential upside of 50%. Corvex held nearly 30 million shares of Centurylink Inc (NYSE:CTL) at the end of March.

10. VMware, Inc. (NYSE:VMW)

Next in line is VMware, Inc. (NYSE:VMW), which is a subsidiary of Dell Technologies Inc (NYSE:DVMT) and is trading as a tracking stock (i.e. it doesn’t offer ownership of underlying assets, but is used to show the performance of the subsidiary). In VMware, Inc. (NYSE:VMW), 32 funds from our database held shares at the end of March, down by two funds over the quarter. VMware, Inc. (NYSE:VMW) was one of the leaders in virtualization software and is currently betting on partnerships with other companies. The company has signed partnerships with Amazon and Microsoft, moves that analysts see as much better options for the company than to try and compete with the public cloud behemoths.

9. Citrix Systems, Inc. (NASDAQ:CTXS)

Citrix Systems, Inc. (NASDAQ:CTXS)’s ownership among the investors in our system inched up by one to 36 during the first three months of 2017. Citrix focuses mostly on cloud computing, offering services that allow employees to work and collaborate remotely, providing software and desktop virtualization, as well as some SaaS products like Podio, a cloud-based collaboration service, which Citrix bought in 2012.

8. Adobe Systems Incorporated (NASDAQ:ADBE)

After having established itself as a leading provider of creative software, Adobe Systems Incorporated (NASDAQ:ADBE) announced its transition to cloud services in 2011. The transition meant that the company would offer its software on a subscription-based model (similar to Office365). Over six years later, it looks like the company made the right move. In the first quarter, Adobe generated 82% of its revenue from subscription fees for its Creative Cloud, Adobe Marketing Cloud, and Document Cloud Services. At the end of March, there were 54 funds holding shares of Adobe Systems Incorporated (NASDAQ:ADBE), unchanged from the end of the previous quarter.

7. Oracle Corporation (NYSE:ORCL)

The number of funds from our database bullish on Oracle Corporation (NYSE:ORCL) jumped to 56 from 49 during the first quarter. Subsequently, the total value of their holdings advanced to $6.77 billion from $5.60 billion. During an earnings call last year, the company’s Executive Chairman and CTO Larry Ellison confirmed Oracle’s commitment to cloud and the results are already showing. According to Oracle’s latest 10-Q report, its SaaS and PaaS segments are in fast-growing mode, having registered revenue of $1.01 billion in the company’s fiscal third quarter ended February 2017, almost double the $583 million figure of a year earlier. During the conference call, Oracle Corporation (NYSE:ORCL)’s CEO, Safra Catz, said that she expects that the company’s cloud revenue will be even larger next year, thanks to new software license revenue.

6. International Business Machines Corp. (NYSE:IBM)

As International Business Machines Corp. (NYSE:IBM) is struggling in hardware and software, the company has been shifting its strategy towards the cloud. During the first quarter, its cloud revenue surged by an annual 33% to $3.50 billion, while the revenue inched down by 3% to $18.20 billion. Additionally, International Business Machines Corp. (NYSE:IBM)’s annual cloud revenue advanced by 35% to $13.70 billion, while its cloud-as-a-service annual revenue run rate grew by 63% to $8.60 billion. The hedge fund sentiment towards IBM also registered a boost during the first three months of 2017, as the number of investors long the stock went up by nine to 61.

5. Intel Corporation (NASDAQ:INTC)

Let’s now proceed to the top five on our list of 11 best publicly traded cloud computing companies, beginning with Intel Corporation (NASDAQ:INTC), in which 62 funds held shares at the end of March, up from 58 funds a quarter earlier. With the decline of the PC market, Intel seized the opportunity and saw where businesses were moving, so it jumped in and quickly become the dominant supplier of chips for data centers that power cloud services all around the world, including those operated by Amazon, Google, and Microsoft. During the first quarter of 2017, Intel’s Data Center Group revenue went up by 6% on the year to $4.23 billion, boosted by an 18% jump registered by the cloud market segment. In addition, Intel Corporation (NASDAQ:INTC) is making strides in the Internet of Things industry.

4. salesforce.com, inc. (NYSE:CRM)

salesforce.com, inc. (NYSE:CRM) provides enterprise software entirely through the cloud, generating revenue mainly through customer relationship management (CRM) software. For its fiscal first quarter ended April 30, salesforce.com, inc. (NYSE:CRM) posted cloud service revenue of $2.20 billion, with the largest shares of that being amassed by its sales cloud ($829.60 million) and service cloud ($651.20 million) segments. Among the funds in our database, 79 investors held shares of salesforce.com, inc. (NYSE:CRM) heading into the second quarter, compared to 64 funds a quarter earlier.

3. Microsoft Corporation (NASDAQ:MSFT)

In Microsoft Corporation (NASDAQ:MSFT), the number of funds holding the stock declined by five to 121 between the beginning of January and end of March. As a leading software company, its cloud computing segment represents only a fraction of its entire business. Its Intelligent Cloud segment, which is responsible for the largest share of its cloud-generated revenue, posted sales of $6.80 billion in the company’s fiscal third quarter. In addition, Microsoft Corporation (NASDAQ:MSFT)’s Azure registered growth of 93% and the company said that its entire commercial cloud business reached an annual run rate of $15.20 billion, which it expects to reach $20 billion next year.

2. Amazon.com, Inc. (NASDAQ:AMZN)

Even though Amazon.com, Inc. (NASDAQ:AMZN) is not on the first spot on this list based on hedge fund sentiment, it is the leading cloud computing company based on adoption rates. It also has one of the largest cloud computing businesses based on revenue, having reported AWS sales of $3.66 billion for the first quarter, up by 43% on the year, which represented 10% of consolidated revenue. Amazon.com, Inc. (NASDAQ:AMZN)’s AWS segment is expected to reach over $40 billion by 2022 and to amass over 8% of total cloud spending. When it comes to hedge fund sentiment, during the first quarter, the number of funds long Amazon.com, Inc. (NASDAQ:AMZN) appreciated by six to 129.

1. Alphabet Inc (NASDAQ:GOOGL)

Finally, is Alphabet Inc (NASDAQ:GOOGL), in which 135 funds from our database held class A shares of on March 31, while 117 funds held class C shares, down from 139 and 126 funds respectively a quarter earlier. As Alphabet is a tech giant involved in a large number of industries, it’s most likely that investors are fond of Alphabet mainly because of its online advertising business rather than its cloud segment. The company pointed out that cloud is one of its fastest-growing businesses, but it does not provide any data, instead including it in the “Google other revenues” segment, which registered growth of 43% to $3.10 billion during the first quarter.

That warps up our list of the 11 best publicly traded cloud computing companies, which we think are the best to invest in based on hedge fund sentiment. Most of these companies are diversified, with cloud only taking up a part of their business, but this also precisely what positions them as better investment opportunities in the space.

Disclosure: None