Cloud computing is a recently evolved technology that allows centralized data storage and online access to computer services or resources through remote servers and software networks. Multiple technology companies have started transitioning from IT resources into the cloud and are continuously competing with each other to become the leader in the cloud computing space. Cantor Fitzgerald analyst Brian White released a note to investors on February 24 reviewing technology stocks that are “anticipated to more aggressively embrace the Cloud over the next twenty four months with more mission critical applications.” The analyst states that “although the Cloud proved very disruptive for many of the large IT vendors over the past couple of years, [he] believe[s] the better managed companies will be able to successfully make this transition.” Highlights from the report are as follows:
Cisco Systems (CSCO):
Cisco Systems's transition into the cloud has allowed the company to grow beyond its traditional area of routers and switches. In its latest earnings report on February 11, Cisco saw a 40% increase in its earnings driven by data relevant product and services . Cisco also reported that its Unified Computing System data center platform has been adopted by more than 41,000 customers.
Brian White currently has a Buy rating issued on Cisco Systems with a price target of $33. The analyst highlighted Cisco’s transition into software defined networking (SDN), noting “the trend toward SDN is real and will force the incumbent networking players to change their models, (e.g., Cisco Systems) but this trend will take a long time to play out.”
White explains, "You have got easy comps and a nice product cycle in routing, in switches and in SDN… And you have got a cloud product called Intercloud that is starting to ramp up." He concluded. "The mantra at Cisco is to become the No. 1 IT company, it's not to be the No. 1 networking company…So they are rolling out more software, more services with Intercloud and offering a revamp of their switch portfolio with (new) ACI (switches)."
Brian White has rated Cisco systems 12 times since September 2010, earning an 87% success rate recommending the company and a +14.7% average return per recommendation.
IBM (IBM):
During 2014, IBM’s cloud revenue increased by 60% to $7 billion. IBM is scheduled for an investor briefing on February 26 and is expected to discuss its hybrid cloud plans. To put it simply, IBM plans to make all the separate clouds act like one. IBM believes that hybrid cloud arrangements will appeal to many companies, and compel connections between new-wave Web applications with traditional backend computing operations.
Brian White has issued a Buy rating on IBM with a $198 price target, citing “Amongst our mega-cap IT coverage, we believe investors are most concerned with IBM's transition to the Cloud; however, we believe the company has stepped up the pace of investment in this area and will ultimately make the transition.” During its investor briefing, White “believe[s] IBM must articulate how the company has positioned itself to benefit from key secular trends around cloud computing, Big Data and mobility” in order to assure investors.
Brian White has rated IBM 10 times since September 2013 with a 60% success rate recommending the company and a -1.8% average loss per recommendation.
Oracle (ORCL):
Oracle’s latest earnings report on December 17 showed cloud revenue growth of 45% to $516 million across its Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS) services. Oracle has been focused on growing its cloud business and it has been showing as the company is getting bigger and its growth rate is accelerating. At the Oracle Value Chain Summit on January 27, Oracle CEO, Mark Hurd, said that within five to six years, he predicts cloud applications will take up 50-60% of the total enterprise application market due to its influence in the speed of development of new functionality, easier implementations and easier upgrades.
Brian White currently has a Buy rating on Oracle with a $48 price target.
He notes, “we believe Oracle is the furthest along amongst the large IT vendors, and we believe the company's ability to embrace all three layers of the Cloud (in a meaningful way) will prove to be a big differentiator.”
White has rated Oracle 10 times since March 2014, earning an 80% success rate recommending the stock and a +7.7% average return per recommendation.
VMware (VMW):
VMware was later than most company’s in transitioning to the cloud as they were making a large profit with a technology called “server virtualization,” which creates multiple operating systems on a single computer server. The company transitioned to the cloud in 2013 and quickly started developing and distributing its own cloud products. Like IBM, VMware rolled with the idea of hybrid clouds so businesses could use both private and public clouds depending how much security they prefer to have. VMware recently updated its vSphere platform, its core virtualization platform and the foundation on which its cloud service is built on in order to have its hybrid cloud resources available on one combined platform without having to change the internal network or any of the standard customs its customers use.
Brian White currently has a Hold rating on VMware with a price target of $82. In regard to cloud containers, White believes “they will not be as disruptive to the leading virtualization software vendors (e.g., VMware) as the market has feared.”
White has rated VMware 4 times since December 2011 with no positive returns and a -7.7% average loss per recommendation.
Workday (WDAY):
Workday develops and provides cloud applications for finance and human resources and has established itself as one of the fastest-growing businesses in SaaS cloud computing space and Big Data business. The company last reported earnings on February 25, posting subscription revenues of $181.9 million, an increase of 64% from the same period last year. The company’s total revenues were $226.3 million, an increase of 59% from the fourth quarter of fiscal 2014.
Brian White has issued a Buy rating on Workday with a price target of $121, noting “In our coverage universe, we believe Workday is best positioned amongst the next generation SaaS vendors.”
White has rated Workday 6 times since August 2014, earning an 83% success rate recommending the company and a +3.1% average return per recommendation.
Overall, Brian White has a 76% success rate recommending stocks and a +21.2% average return per recommendation.
