5 Companies to Play the Cloud-Computing Revolution

You know the old saying about how an idea is the greatest thing since sliced bread? Well, cloud computing really is the best thing to happen to the tech sector since Al Gore invented the Internet.

OK, so that's a joke that'll never die, but according to estimates from Cisco Systems, global data-center IP traffic is expected to increase by a compound annual growth rate of 33% between now and 2015, with cloud workloads increasing to 57% of all data-center workloads by 2015 from just 21% in 2010. These figures are as real as its gets, and they demonstrate that the movement toward data sharing and storage is huge and rapidly transforming both large and small businesses.

With so much money being invested in virtualization, storage, and data transmission in the cloud, today I want to look at five different ways you can put your money to work in this segment for the long term.

Hardware
The basic building blocks of life are air, water, and food; the basic building block of the software that runs the cloud is the hardware it's built around. That's where my long-term choice, Intel (Nasdaq: INTC  ) , comes into play.

Intel has made no secret that it's betting big on cloud computing to drive future growth, and it's aggressively infiltrating the cloud on multiple fronts. Intel is responsible for manufacturing some of the leading chips being used in Cisco's servers, while also supplying the hardware necessary to transmit big data throughout the cloud. Intel's unified networking products, built around 10-gigabyte adapters, allows for big data to be transmitted quickly, efficiently, and without the need for a spider web's-worth of wires being used. Intel isn't without its fair share of competitors, but it has the financing and partnerships to be the premier cloud hardware play.

Storage
As a sidebar to the hardware required to keep the cloud running, enterprises are going to need immense amounts of storage space. That means data-storage companies are going to be able to double-dip on the demand from both the PC end of the business, as well as on the server side.

The company I have in mind here is Seagate Technology (NYSE: STX  ) , which controlled 42% of the hard-disk drive market share globally in its most recent quarter. Seagate is using acquisitions and product innovation to drive its cloud growth. Its 2006 acquisition of EVault pushed it into enterprise data backup, while its purchase of French-based LaCie earlier this year expands its cloud storage presence and gives the company instant access to Apple, which carries LaCie's hard drives in its retail stores. The real draw of Seagate for me, over its rival Western Digital, is that its push into the cloud when supplemented with its key acquisitions should give it better pricing power than it has ever had. The demand on storage is so strong that I anticipate that pricing won't be a factor for years.

Security
You can't run a data center without having it properly secured from hackers, viruses, and other malware, and that's where the freshly public Palo Alto Networks (Nasdaq: PANW  ) comes in.

Traditional and built-in security and firewall providers, such as Cisco and Juniper Networks, can protect against threats to older architecture and work well for individual users, but they don't work nearly as well for enterprise customers. They also require regular updates to protect against an ever-evolving sea of malware. Palo Alto, on the other hand, has designed its suite of products specifically for cloud-computing companies. Its cloud applications are predominantly self-managing and are able to integrate security for both old and new architecture websites (i.e. social-sharing platforms such as Facebook and Twitter). As next-generation firewalls become the norm over the next few years, I see Palo Alto's offerings becoming a big winner.

Virtualization
Before you can actually be a leading cloud-computing provider, you need a leading cloud virtualization company capable of delivering the solutions needed to optimize data-center efficiency. VMware (NYSE: VMW  ) is the company I'd peg to be the hands-down leader in cloud virtualization for years to come.

VMware's products, and its recent purchase of Nicira, allow enterprises to efficiently subdivide and program the operations of a network or operating system all at once, rather than taking on the task of programming them all individually. In easier-to-understand terms, VMware provides software-as-a-service management that allows enterprises to build their clouds -- it's the light on the horizon before the sun comes up. VMware's leading position in providing enterprises with the ability to adapt and control their cloud's development has allowed it to garner some very high-profile customers, including Verizon, Southwest Airlines, and NYSE Euronext, and should continue to be a long-term growth driver.

Cloud provider
Well, you knew there had to at least be one cloud-computing play on this list, and that designation goes to Amazon.com (Nasdaq: AMZN  ) , whose EC2 pay-as-you-go and S3 storage platform have been the models by which other cloud platforms have been designed.

Very simply, Amazon is the premier name in the cloud, though it'll face stiff competition from Microsoft and Rackspace Hosting in the coming years. Amazon's elastic-computing cloud is revolutionary in that it was the first solution to be offered without a contract. Enterprise users instead can treat Amazon's EC2 like an expanse of empty servers for their own disposal and simply pay when they need the service. Amazon's S3 storage works along the same parameters in that users pay only for what they use, allowing them easy access to large quantities of data, which can easily and securely be transferred to different data centers. Amazon's leading position as a cloud provider makes it the no-brainer choice among the five stocks here.

Foolish roundup
According to research firm Forrester, the market value of cloud computing is expected to increase from just $41 billion in 2011, to $241 billion by 2020. That's a massive increase and a primary reason you can't ignore the latest developments in the cloud-computing landscape. I've listed the five companies I believe will be the biggest winners of this tech revolution. In the comments section below, let me know whether you agree or disagree with my five choices and which company (or companies) you'd choose if not the five I listed.

With big money obviously flowing into cloud computing, it pays to keep up on the companies set to change the way businesses operate and grow. That's why our analysts have been hard at work, digging through the opportunities and threats that could affect such companies as Apple, Intel, and Facebook and bringing their findings to you through our latest premium special reports. Each report costs less than a week's worth of coffee and comes with one year of updates. Best of all, it could give you the investing edge you need to profit in a big way. Follow the links to get the latest premium reports on Apple, Intel, or Facebook.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Amazon.com, Cisco Systems, Apple, Intel, Western Digital, Facebook, and Microsoft. Motley Fool newsletter services have recommended buying shares of Facebook, Amazon.com, Apple, Microsoft, VMware, Rackspace Hosting, NYSE Euronext, Southwest Airlines, and Intel, as well as creating a bull call spread position in both Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On August 14, 2012, at 1:40 PM, HectorLemans wrote:

    Digital Realty Trust (DLR) is an excellent REIT I've been investing with for some time that builds, acquires and runs data centers.

  • Report this Comment On August 17, 2012, at 11:40 AM, jameskm03 wrote:

    INTC also wins in storage through their best in class SSD offerings and security as they continue to integrate McAfee secruity directly into the hardward and chips that they produce.

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