You're Missing a Huge Opportunity

In September, we ran a series about the biggest market opportunities available to investors right now. More than 70% of those who responded to our poll about the possibilities for cloud computing thought it was a winner.

They have good reason. Cloud computing is computing that occurs on the Web, typically inside a browser. Big companies such as Google (NASDAQ:GOOG) and salesforce.com (NYSE:CRM) are investing heavily in this idea, and they're reducing costs for businesses and consumers in the process. Lightweight netbooks have become just as interesting and relevant as the most heavyweight desktops.

And yet skeptics remain. "To my knowledge, there is no company out there that can credibly claim, based on track record, to keep your data safe," wrote CAPS investor brickityman in response to my blog post asking for comment.

That's fair. Security issues have plagued Twitter, and downtime has frustrated Gmail users. No one can say conclusively that using the Web to deliver software and store data is 100% safe.

Better opportunities?
Other investors are eschewing the Web's wilds because they see better opportunities elsewhere. Jacob is just that sort of Fool.

"No, [cloud computing stocks are] too exciting and hence faddish," he wrote to me via Twitter. "I like boring things like shipping. You won't find a cloud stock with a low P/E."

True. VMware (NYSE:VMW) and its closest peer, Citrix Systems (NASDAQ:CTXS), are trading for 66 and 43 times earnings as of this writing. Both companies provide virtualization technology that allows data centers to operate more effectively.

But the high price tag may be justified. "I don't think there's another company that offers a pure play on cloud infrastructure," wrote CAPS investor ajm101, also in response to my blog post.

Digital infrastructure is an important niche. Data centers may be nondescript concrete fortresses filled with computers and air conditioners, but for the digital world, they act as FedEx distribution centers. They deliver cloud computing software, services, and data, and the vendors behind them have experienced outrageous growth as a result. For example, VMware's revenue is up 30% annually over the past two years. 

Still, there's no convincing Jacob. He's instead buying shipper TBS International (NASDAQ:TBSI), which he likes not only because it was trading for less than five times earnings, but also because of its business advantages: "They have special boats for hard access areas with no ports -- i.e., emerging markets," Jacob wrote.

Why you should trust the cloud anyway
I can see the logic. There are cheaper stocks out there, and there are open questions as to the durability of cloud computing as a delivery model.

We should also remember that tech births more disruptive innovators than any other industry. That's a problem. Disruptors tend to kill incumbents as they grow, and those incumbents tend to be companies once thought to be tech's elite. Giants of their time. What makes cloud computing giants immune?

The brutal truth is ... nothing. Cloud computing is exactly the same as the disruptive technologies that preceded it. We've also been talking about it for more than a decade. Back then, we didn't call it the cloud -- we referred to a movement toward "distributed computing," where storage and processing power and software would cooperate across far-flung networks, united by the Web.

Yet this is good news. History shows that investing early in disruptive innovators, at the point when their economic advantages have become clear, tends to pay off huge. Just ask those who bet on Google in 2004, or Research In Motion (NASDAQ:RIMM) in 1999, or Amazon.com in 1997.

The payoff
Cloud computing is following a similar path. How? For one, Web-based software scales quickly, earning vendors high returns on invested R&D dollars even as it lowers costs for customers.

That's proven to be especially important over the past year. As the Great Recession has torched much of the economy, the Cloud Kings continue to earn huge R&D yields. Huge enough that Google and salesforce.com have begun to resemble what Microsoft (NASDAQ:MSFT) was before it stopped growing.

R&D efficiency measures the amount of new research expense needed to produce $1 in new revenue. Lower is better:

Google

*Compared on a year-over-year basis.

salesforce.com

*Compared on a year-over-year basis.

Microsoft

*Compared on a year-over-year basis.

Cloud computing could very well be a fad. Yet tens of thousands of software developers seem to think differently. Plus, as these numbers show, there's economic efficiency that comes with operating a business on a cheap-to-access, open network like the Web. This disruption is real, and it's going to make some of us a lot of money.

That's why we're investing in cloud computing stocks at Motley Fool Rule Breakers, including Google, salesforce.com, and VMware. Care to learn more about the technology, or get more of our Internet stock ideas? Click here to get a free 30-day all-access pass to the service. There's no obligation to subscribe to anything.

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Google, salesforce.com, and VMware are Rule Breakers recommendations. Amazon.com and FedEx are Motley Fool Stock Advisor selections. Microsoft is a Motley Fool Inside Value pick. Motley Fool Options has recommended a diagonal call on Microsoft.

Fool contributor Tim Beyers is a member of the market-beating Rule Breakers stock picking team. He owned shares of Google at the time of publication. The Motley Fool has a disclosure policy.