Has Cloud Computing Killed Infrastructure Stocks?

Middling financial reports from the likes of Riverbed Technology (NASDAQ: RVBD  ) and F5 Networks (NASDAQ: FFIV  ) bode poorly for infrastructure stocks, Fool contributor Tim Beyers says in the following video.

With both stocks, product revenue growth lagged overall revenue growth. The message? Clients aren't as interested in fast hardware as they used to be. Instead, Tim says, they're buying subscriptions to the major cloud-computing environments and letting those suppliers buy, deploy, and manage the necessary equipment. Think of NetSuite, a supplier of cloud-base financial management software which reported 34% revenue growth in the third quarter.

Do you agree? Are you buying or selling infrastructure stocks right now? Please watch the video to get Tim's full take and then leave a comment to let us know where you stand.

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Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 10, 2013, at 12:50 PM, KenLuskin wrote:

    Good article! It is a dangerous time to own IT stocks.

    The emergence of the public cloud from the shadow of owned IT hardware and personalized IT services is the biggest disruption since the Internet became mainstream.

    The largest IT vendor is IBM... therefore they have the most to lose.

    Sometime simple and obvious observations are correct.

    http://seekingalpha.com/article/1826672-ibm-has-a-cash-flow-...

    My article http://seekingalpha.com/article/1749902-the-info-tech-servic... did not focus on the specific numbers as the above article does.

    I think both articles support the basic thesis.

    CFO resigns

    http://www.bloomberg.com/news/2013-11-07/ibm-s-finance-chief...

    IBM is focused on growth from Cloud computing, but this is a net negative.

    IBM says it generated 1$ billion from cloud products and services in Q3, but that is out of a total of 23.7 billion, equating to only a 4.2% share of their total revenues.

    Meanwhile the growth in the cloud is greatly damaging to the rest of IBM's businesses.

    Therefore, IBM cannot grow their cloud revenues fast enough to make up for the decline in their other businesses.

    Furthermore, Amazon is by far the largest provider of public cloud services. Amazon is willing to accept operating margins of only a few percent, in order to grow.

    Meanwhile IBM earned 20% net profits in Q3.

    In order for IBM to grow in public and private cloud services, they will be forced to accept significantly lower operating margins.

    Bottom line: It simply does not make sense that IBM can grow their cloud profits enough to counteract the falling sales and profits in their other businesses.

  • Report this Comment On November 20, 2013, at 9:55 AM, Nishlups wrote:

    Not sure how surpassing street consensus (F5) can be considered as "middling financial reports".

    F5 has a full deck of cloud-ready solutions including their acquisition of LineRate Systems for software-based solution targeting DevOps.

    RVBD is even a poorer example of a hardware-based company.

  • Report this Comment On March 24, 2014, at 3:58 AM, derrickmarcel wrote:

    Cisco <a href="http://www.axonex.com/security/email-and-web/" target="_blank">cloud web secrity</a> provides unparalleled protection and control of any organisation’s email, and offers the cost-effective convenience of a Cloud deployment model.

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