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Why Cloud Computing Stocks Soared on Wednesday

By Anders Bylund - Dec 26, 2018 at 9:46PM

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Zscaler, Talend, and Okta jumped more than 10% higher on Wednesday, despite a total lack of cloud computing news.

What happened

It doesn't always take much news to drive a stock 10% higher. Today, for example, lots of classic high-growth tickers in the cloud computing market surged skyward on nothing more substantial than a general market bounce. If a rising tide lifts all boats, this one simply buoyed some vessels better than others. Cloud-data management pro Talend (TLND) rose as much as 11.8% higher, cloud-based authentication specialist Okta (OKTA 11.41%) reached an 11.3% peak, and cloud security expert Zscaler (ZS 11.34%) topped out at a 10.3% gain.

A young man fist-pumps in glee over what he's reading on a tablet computer.

Image source: Getty Images.

So what

With moves like these, one might expect at least some major news tidbit in the cloud computing sector at large. That was not the case here. Instead, these volatile tickers simply tagged along with one of the sharpest moves to the upside in stock market history. The Dow Jones Industrials index gained 1,086 points or 5% on Wednesday, while the tech-heavy Nasdaq index rose 5.8% higher.

Besides providing their services in the same cloud-computing niche, this batch of companies has a couple of other important details in common. They are all unprofitable today, and they all entered the stock market in the past 22 months. These facts make it more difficult to judge their business performance and to set a fair market price on their stocks, making all three tickers more volatile and fundamentally more sensitive to market-moving phenomena. So on a day where market makers seemed determined to erase as much of this year's share price drops as possible, our protagonists simply threw some extra fuel on the fire.

Now what

Both Okta and Zscaler have a tendency to beat Wall Street's expectations in their earnings reports, and both stocks have crushed the market in 2018. Okta has now gained 145% this year, and Zscaler's shares are up by 126% since launching its IPO in March.

Talend's business performance has been more hit-and-miss, triggering as many sudden drops as massive surges in its stock price. All told, Talend investors have posted an 8% loss in 2018. That's still slightly ahead of the S&P 500's 10% loss, but far from an inspiring victory march. Among other issues, the company has been accused of offering less than perfect transparency in its results and operations. A newly appointed CFO might cure that issue.

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Stocks Mentioned

Okta Stock Quote
Okta
OKTA
$97.70 (11.41%) $10.01
Talend Stock Quote
Talend
TLND
Zscaler Stock Quote
Zscaler
ZS
$153.23 (11.34%) $15.60

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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