3 Ways to Cash In on Cloud Computing

As any IT guy or gal will tell you, cloud computing is and will likely continue to be one of the biggest trends in the industry. If you're among those who think cloud computing is simply about using your laptop while flying the friendly skies, we need to get you up to speed! So what is cloud computing and how can you profit from it? We've got that covered for you below.

What is cloud computing?
Essentially, cloud computing allows for IT resources (software and hardware) to be shared over a network -- usually on remote servers. For example, instead of installing software on your workstation, the software is hosted on a server and run over a network, which valid users can access. Examples are Yahoo!’s and Google's e-mail. Both Google (Nasdaq: GOOG  ) and Yahoo! are very active in their use of this technology.

The future in clouds
While the most well-known public clouds are on Google and Yahoo!, the future is in private cloud computing. Businesses, universities, and government agencies are all looking to utilize this technology as it produces lower costs. As organizations become more familiar with this know-how, combining public and private clouds is likely.

In the meantime, cloud computing is expected to continue experiencing a boon. According to IT research firm Gartner, worldwide revenue from cloud services is predicted to be about $68 billion this year. This represents an increase of nearly 17% from 2009. Better yet, Gartner forecasts continued growth in this area, particularly from overseas firms as they catch up with their U.S. counterparts. So there is still plenty of money to be made in this area.

How to profit?
How can you put this information on cloud computing to use? Besides a play on Google and Yahoo!, consider investments in Oracle (Nasdaq: ORCL  ) , BMC Software (Nasdaq: BMC  ) , and Informatica (Nasdaq: INFA  ) . These three firms potentially stand to rake in big bucks thanks to the rush to hybrid (combined public and private) clouds. Let's take a closer look at the three.

Oracle is in the midst of a wide range of cloud-computing activities. It has been teaming with Amazon.com to offer customers a wide mix of cloud services and also offers hardware and software solutions utilizing clouds, as well as integrating its famed database within this environment. Oracle should also began to reap the technological benefits from is acquisition of Sun Microsystems, as the two combine expertise and allow Oracle to sell a complete solution that melds its software and hardware.

BMC Software faces a threat on one end as cloud computing may pressure sales of its help desk software. The firm partnered with salesforce.com (NYSE: CRM  ) in this area to head off the threat, but the loss of legacy revenues remains a threat. However, don't feel bad for them since they should see increased revenues in other areas. Those converting to hybrid cloud environments will look to BMC's products to keep their antiquated IT systems running aside newer systems to ensure a smooth transition. Moreover, BMC's service management software is valuable to customers as it allows them to configure, operate, and monitor clouds.

The ability to retain access to data on public clouds is a concern for businesses. For example, some data need to be shared while other need to remain private. Unfortunately, this is not simple to administer in a cloud environment. Luckily, Informatica has an "app for that." It provides software that enables the transfer of information between different systems. It has partnered with Concur Technologies (Nasdaq: CNQR  ) and salesforce.com in separate agreements to provide data management software for use in clouds.

How to get to cloud 9?
Which of these three companies looks the most attractive? Based on their technology alone, they all look to have strong potential. However, let's take a closer look at some numbers.

Company

Trailing P/E (TTM)

ROE (TTM)

Debt/Equity

Oracle

18.0

22.0

0.5

BMC Software

16.3

33.6

0.3

Informatica

46.2

15.2

0.0

P/E = price-to-earnings ratio. ROE = return on equity. TTM = trailing 12 months.

As you can see from the above table, all three companies have low debt-to-equity ratios. When considering the price-to-earnings multiple and return on equity, BMC Software seems to be the most appealing of the three. Oracle finishes a close second, judging by these criteria. Meanwhile, thanks to high growth expectations as the result of earnings nearly doubling over the past five years, Informatica is carrying a hefty valuation, according to the P/E ratio. Therefore, value investors would be wise to consider BMC Software, while growth investors should mull over Informatica's recent history of earnings growth.

Technology trends have historically been difficult to predict, but cloud computing is here for the long haul. Its focus on lowering information technology costs will ensure that enterprises consider switching to it. With these three companies mentioned above, investors could have their heads in the clouds with the potential for profits.

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Gerard Torres has no beneficial interest in any of the companies mentioned in this article. Google is a Motley Fool Inside Value selection. salesforce.com and Google are Motley Fool Rule Breakers recommendations. Amazon is a Motley Fool Stock Advisor pick. The Fool owns shares of Google and Oracle. The Fool's disclosure policy is the best disclosure policy in the business.


Read/Post Comments (8) | Recommend This Article (16)

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 August 31, 2010, at 6:09 PM, TEC107 wrote:

    What about Redhat?

  • Report this Comment On August 31, 2010, at 6:12 PM, Howard1ii wrote:

    What impact do you see to the companies that sell servers & storage i.e. IBM, HP, & EMC? Seems to me that short term this could drive sales as companies gear up to support their own clouds, but longer term and we get to "shared clouds" less servers should be needed overall.

  • Report this Comment On August 31, 2010, at 8:12 PM, CustardPies wrote:

    A cloud computing article without reference to Akamai? Did I enter the twilight zone?

  • Report this Comment On August 31, 2010, at 9:46 PM, rlcato wrote:

    RedHat is so yesterday; they're pretty well established. VMware is really making in-roads in the cloud computing sphere; so-much-so that even MS is starting to panic a bit.

    But for a bit more info...

    http://www.fool.com/investing/general/2010/08/30/who-loves-o...

  • Report this Comment On September 01, 2010, at 9:56 AM, Pick1es wrote:

    "As any IT guy or gal will tell you, cloud computing is and will likely continue to be one of the biggest trends in the industry."

    As an IT consultant who has done several cloud computing projects, I would never invest in a company that is expecting large returns from future cloud computing contracts. The word cloud is now a turn-off for me...

  • Report this Comment On September 01, 2010, at 12:23 PM, gimponthego wrote:

    I'm in the same boat as Custard Pie..only my stock is RAX who practically Invented cloud computing rite cheer in san antone!

  • Report this Comment On September 01, 2010, at 12:25 PM, gimponthego wrote:

    And what about ISLN making money hand over fist? Someone needs a secretary to assist them when the waves start coming in! Take care all my family and friends on the OBX!

  • Report this Comment On September 01, 2010, at 5:58 PM, Gerardt99 wrote:

    @ Howard1ii

    As you point out, organizations that switch to clouds they may need new servers and storage to accommodate the new technology.

    @ All Other Commenters

    You are all right in that there are many firms that operate under the umbrella “cloud” computing. For the sake of brevity, only these three firms were covered. However, if you’d like to learn more about a particular company then just let me know and if we have enough interest I will certainly write about it for you.

    Gerard

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