Cloud computing has not only led to many new companies springing up, but has also allowed many stagnating tech giants to breathe some much-needed life into their moribund operations, including Microsoft Corporation (NASDAQ:MSFT) and Hewlett-Packard Company (NYSE:HPQ). Many private cloud-based firms have tried to take advantage of this favorable atmosphere and the strong valuations for cloud-based companies that have mostly resulted. Rumors of Dropbox joining the list of publicly-traded cloud companies have been surfacing lately, but considering the recent treatment that its competitor, Box Inc (NYSE:BOX) has received, it is not a surprise that its management might have some qualms about the move. Considering the extensive research that hedge funds carry out, their equity picks can serve as a good yardstick for retail investors. Hence, we decided to look at the top cloud computing companies in terms of their popularity among these elite investment firms.
We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 118% since then and outperformed the S&P 500 Index by over 60 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.
4. Box Inc (NYSE:BOX)
Investors with Long Positions (as of June 30): 9
Aggregate Value of Investors’ Holdings (as of June 30): $43.49 Million
The aggregate investment in Box Inc among the funds we track dropped from $50.76 million at the end of the first quarter, although the number of funds with long positions increased from eight. Following its IPO at the end of January, Box Inc (NYSE:BOX)’s stock has depreciated by a staggering 42%. After the recent expiration of the six month lock-up period, many investors offloaded their shares. However, this could also mean that the stock is undervalued right now, especially considering Oppenheimer’s recent upgrade and the revision of its price target to $21, which provides an upside of more than 50% to the current price. Philippe Laffont‘s Coatue Management is the largest shareholder of Box Inc (NYSE:BOX) among the funds that we track, holding nearly 1.25 million shares.
3. Rackspace Hosting, Inc. (NYSE:RAX)
Investors with Long Positions (as of June 30): 37
Aggregate Value of Investors’ Holdings (as of June 30): $1.20 Billion
The hedge fund interest in Rackspace Hosting, Inc. (NYSE:RAX) has fallen from 39 funds, holding $1.29 billion at the end of March, which is not surprising considering the 35% fall in the company’s stock price so far this year. Not only did the company miss revenue estimates for the first quarter, it also provided a disappointing outlook for the second quarter, and the same story continued in the second quarter, with the addition of a new wrinkle: Rackspace Hosting, Inc. (NYSE:RAX)’s management announced increasing its buyback program to $1 billion, which among other sources, will be financed by debt, news that didn’t ring well with investors. Barry Rosenstein‘s JANA Partners, however, increased its stake in Rackspace Hosting, Inc. (NYSE:RAX) by 84% to 11 million shares during the June trimester.