Return to Earth for the Cloud

Over the past 3 months, the stock market decline in technology stocks, caused by rising interest rates, has not survived in any sector.

And this is particularly the case for “Cloud Computing” companies.

According to the definition proposed by Jean-Paul FIGER in the review “Techniques de l’Ingénieur” (February 2012), Cloud Computing is a revolution in the way of organizing, managing and distributing IT resources. Its operational definition announces a computing model that allows easy, on-demand network access to a shared set of configurable computing resources ”(e.g. defined by the National Institute of Standards and Technology).

Different models

Several distribution models have emerged for these resources over the past fifteen years, whether through the use of software (“Software as a Service”, where the user can access an application remotely), platforms – form in IT (“Platform as a Service”, where a user deploys their applications on a third-party infrastructure) or infrastructure (“Infrastructure as a Service”, where the user rents computing resources).

Other applications have emerged in the field of communications or other functions within companies, leading to a wave of investments that intensified in conjunction with the COVID-19 pandemic and the reorganization of procedures in employment (teleworking, hybrid organization …).

From 1 to 200 billion dollars

In this universe, heavyweights with an ancient history, such as Adobe (“Wide Moat”), Salesforce (“Wide Moat”) o PayPal (“Narrow Moat”), with a market capitalization close to or over 200 billion dollars.

They rub the shoulders of the “little thumb” like next, Agora, large commerce, PagerDuty, Box where Qualys valued at less than 5 billion dollars in the stock market, are often at a loss in operations, but some of them show very rapid growth in their activity.


In a few years, many companies (most often established and listed in the United States) have experienced an explosion in their appreciation.

This momentum has been gained by specific indices, particularly the BVP Nasdaq Emerging Cloud Index.

Over the past three years, the index has nearly doubled in value (+98%), more than the NASDAQ (+89%) and the S&P 500 (+64%).

But over the past three months, it has fallen 33%, while the NASDAQ has fallen 12%and the S&P 500 has fallen 4%.

Stratospheric valuations

As of January 28, 2022, the index had a median valuation of 10.1x annual sales and 8.4x expected sales, compared to a multiple of approximately 3x for the S&P 500 index.

Some companies show ratios around 25-30x, such as Snowflake (“No Moat”) worth 34x the expected turnover, Datadog (“Narrow Moat”) at 29x, Cloudflare at 28x, or Zscaler (“Narrow Moat”) at 27x o Atlassian (“Narrow Moat”) at 25x.

Such levels of appreciation mean that investors expect strong and sustainable business growth from these companies.

It also means they have to maintain their competitive advantage for 25 to 30 years, in market segments where barriers to entry are sometimes very low and where the challenge is to get customers to “hook”. in the solutions offered to them.

Morningstar analysts give some of these companies a “Narrow Moat” economic bulwark rating, meaning they believe these companies should maintain their competitive advantage for a decade. .

This is good, but perhaps not enough to justify estimates as high as some of the values ​​already mentioned.

© Morningstar, 2022-The information contained herein is for educational purposes and provided for informational purposes ONLY. It is not intended and should not be construed as an invitation or inducement to buy or sell the listed securities. Any comment is the opinion of its author and should not be considered a personalized recommendation. The information in this document should not be the only resource for making an investment decision. Be sure to contact a financial advisor or finance professional before making any investment decision.

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