Debut Post: Put your head in the Cloud

A glance at Web 3.0

The forecast for the future of the internet is mostly cloudy. When you look at the sheer magnitude of content being created every day on the internet you must wonder – where is all this data being stored and who is responsible for maintaining and creating this vast virtual infrastructure? Over the past year we have bear witness to the birth of ‘Cloud Computing’. A massive migration of data is taking place behind the scenes at major corporations around the globe. There is no doubt that there has been a fundamental shift in the way we think of the internet and content.

Behind the Scenes

Between 2008 and 2009 there was an explosion of Cloud branding efforts as trademark filings increased by 483%. Corporations such as Dell, HP, Apple, AT&T and others scrambled to position themselves to profit from this fundamental shift. Many companies are simply ‘re-branding’ their products as ‘Cloud Ready’. There is a certain attraction to the Cloud brand – the word ‘cloud’ itself is a non-technical term that anyone can understand. Marketing the cloud brand is a piece of cake – consumers seem to agree. Cloud computing is estimated to account for 1/3 of all content residing or passing through the internet annually by 2020. We are now talking about a new trillion dollar industry.

Recession Proof?

You know the market is not healthy. I know the market is not healthy. Those of us whose last names aren’t Morgan, Rothschild, or Rockefeller cannot do much – but we can blog, upload videos, create content. During this current recession IDC reported that the internet grew 62% – when was the last time you cut back on blogging because of the economy? That’s what I thought. There are certain companies that are positioned to take full advantage of this explosion as the gap between the amount of content created and the storage available to store it is expected to grow from 35% to 60% over the next decade. This fact coupled with the reduced cost resulting from the integration of cloud-based solutions into enterprises will result in a profit bonanza for companies positioned to take advantage of this trend.

Profits in the Cloud

Being the capitalists that we are, we must ask – how can I situate myself to profit from the ‘pop’ in pop culture? The most successful investors and traders get in front of the next big thing – we get on the ripple before it becomes a wave. We have the usual suspects IBM, Dell, Apple, HP – then we have the newcomers. The excitement of watching a small company grow rapidly as a result of being at the right place at the right time is only trumped by the excitement of having been an early investor and sharing in the fruits of their labor. We all love a success story. I’m going to bring up a few companies who are at the right place at the right time.

The first one is EMC Corporation (NYSE:EMC) – at a market capitalization approaching $48 billion it is not quite in it’s infancy. However its upside potential is huge – the bigger the internet gets, the bigger revenues they bring in – think about it. They acquired VMWare (NYSE:VMW) and have strategically positioned themselves to take full advantage of the growth explosion of on demand internet content. Their stock is currently on sale at $23.25 – Analyst Kevin Hunt at Auriga recently upgraded the stock from hold to buy. The upgrade has gone largely unnoticed as the macroeconomics destroyed valuations last week. The analyst views EMC the same way I do – a defensive play in an uncertain economy – for the same reasons I explained earlier. Analysts at Collins Stewart also upgraded the stock to ‘buy’ citing concern that current valuations are too compelling to ignore.

My next cloudy favorite is OCZ Technology Group (NASDAQ:OCZ) the poster child of being in the right place at the right time. At a market capitalization sub-$500M this company has a lot of room to grow. It has phased out its unprofitable DRAM business and has positioned itself in the rapidly growing Solid State Drive (SSD) market. The growth has been orgasmic. The stock tells a different story at a current bargain-basement blowout price of $6.15/share. Their most recent earnings report beat analysts expectations of -.01c EPS with a stunning +.01 EPS – combine that with their FY2011 guidance raise and a huge increase in margins and you start to understand why I like this company. SSD’s are being used in place of traditional spinning disk hard drives in everything from tablets to smartphones to enterprise-class servers and mainframes. They are spectacularly faster, use less energy, require less management and did I mention they are faster? For years the traditional hard drive has lagged behind current technological advancements in CPU speed, memory and graphics. OCZ has provided us the solution – they are stealing market share from STEC (NASDAQ:STEC) and are light years less expensive than the hyped Fusion-IO (NYSE:FIO).

Lastly I’d like to highlight Rackspace Hosting (NYSE:RAX) who has become a staple go-to company for anything and everything Cloud. If you ever wondered where the videos or blogs or pictures or music or what ever you may upload to the internet goes, chances are it’s being hosted by Rackspace. They are strategically situated to become the storage backbone of major corporations all over the globe as the internet grows and enterprise begins to migrate data off-site. At the current stock price of 37.50 I would take a ‘buy the dip’ approach in accumulating shares.

The Final Word

If you made it this far, I’d like to thank you for reading my debut blog post. I care more about what you, the reader, has to say – so I invite you to follow me on Twitter @BreakoutBull or comment here on my blog.

Disclaimer: I have closed all positions on stocks mentioned herein prior to the publishing of this article and have no intention of initiating any positions in the next 72 hours. I hate the pump, I hate the dump.

2 Responses to “Debut Post: Put your head in the Cloud”
  1. GYSC says:

    Very sharp site! Congrats on getting it going.

  2. Saw your site mentioned over at GYSC’s. Nice post and good luck with your new blog!

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