WisdomTrees Cloud Computing Fund appears not to have capitalised on the AI rally this year, despite cloud models being fundamental to AI programs. However, two-thirds of the global cloud infrastructure market is accounted for by three Magnificent Seven companies: Google, Microsoft and Amazon. These companies are already shaping themselves for the next generation of cloud and AI computing.

However, market leaders like Amazon have gained 74% year-to-date.

Cloud providers are partnering with AI firms, and preparing for quantum computing.

Cloud software companies have not participated in 2023s AI rally, wrote Christopher Gannatti, Global Head of Research at WisdomTree, in a 15 November report entitled How Will You Use AI: Cloud Software.

Despite the fact that most AI applications run on cloud platforms, WisdomTrees Cloud Computing Fund [WCLD] which tracks an index of emerging public companies focused on delivering cloud-based software to customers has lagged behind the Nasdaq 100 over the past year.

This could suggest a future bounce in the fund, assuming that the underlying thesis that cloud is fundamental to AI applications is correct, and that the market is yet to price this in. However, there are other possible reasons for cloud stocks underperformance.

One is that emerging cloud stocks are expensive by traditional valuation metrics (such as dividends and earnings), and are likely to remain so because of their large expected growth trajectories. Another is that cloud stocks appear to be highly rate-sensitive. On one level, this reflects the fact that cloud stocks tend to be growth stocks; high interest rates are a headwind because they discount the future returns of these stocks.

However, cloud companies seem to be especially sensitive: the WCLD funds price-to-sales ratio recently fell below that of the Russell 1000 Growth Index.

Gannatti is not discouraged by this fact, though, given that the funds projected sales growth far outweighs that of the growth index.

Gannattis hypothesis, however, relies on the notion that cloud-based computing underpins AI applications. While this may be true, there is a disconnect between the cloud-hosted products from which WCLDs holdings derive the bulk of their revenue, and the cloud providers that actually host other applications, such as AI. Those companies have already seen large gains, and more could be on the way.

Research consultancy Gartner is of the opinion that generative AI is among the technologies that could push public cloud spend to $678.8bn in 2024. This marks a 20.4% year-over-year increase from the $563.6bn forecast for 2023.

The highest-growth segment of the cloud market is forecast to be infrastructure-as-a-service (IaaS), which is expected to grow 26.6%, followed by application platform-as-a-service (PaaS) which is expected to grow by 21.5%.

Synergy Research Group puts global cloud infrastructure spending at $68bn in Q3, up approximately 18% year-over-year. The market research firm contends that the increased demand for cloud infrastructure services brought about by AI is helping to overcome other headwinds the sector is facing, such as challenging economic and political situations.

According to Synergy, Microsoft [MSFT] increased its share of the global cloud-infrastructure market by nearly two percentage points to 11% in the third quarter (Q3), while market leader Amazon [AMZN] stayed within its long-standing market share band of 3234%, though towards the bottom end of that range.

Between them, Amazon, Microsoft and Google [GOOGL] accounted for 66% of the global market in Q3. The tier-two providers that had the highest year-on-year growth rates were Oracle [ORCL], Snowflake [SNOW], MongoDB [MDB], VMware [VMW], Huawei and China Telecom [0728:HK].

Generative AI poses significant challenges for cloud providers. The largest among them Microsoft, Alphabets Google, and Amazon are ramping up their capital spend to ensure that they can offer sufficient capacity, the Financial Times reported in early November. Between them, the companies capital spend totalled $32bn in the three months to September, nearly 50% more than the same period in 2020 and 10% more than in the quarter to June.

This extra capacity is enabling the major cloud providers to form groundbreaking partnerships that centre on the potential of generative AI.

In October, Google Cloud announced a partnership with Moodys [MCO] to develop AI systems for financial experts. While the partnership does not explicitly cite the use of cloud-based systems, its three key goals are likely to benefit from Googles role in the segment: to create specialised large language models for financial analysis, to provide access to Moodys data via Googles data warehouse BigQuery, and to enable search of Moodys financial data using Googles Vertex AI.

Elsewhere, data security and management provider Cohesity announced a partnership with AWS for its Turing generative AI features on 13 November. This will aim to improve data management, security and analysis; enrich data interaction and learning; and enable dynamic training of Turing via retrieval augmented generation.

While AI is adding to the demands on cloud providers, quantum computing which requires large amounts of cloud power has the potential to multiply those pressures in the not-so-distant future. This, in turn, may generate a growth area.

Poised to take advantage of AI- and quantum-related demand, a consortium of French academic and industrial researchers dubbed the CLUSSTER project is developing a cloud service tailored towards AI, high-performance computing (HPC) and quantum computing.

The system will be available for HPC and AI from 2024, and will later be expanded to incorporate quantum computing.

Microsoft has already made its own move into the space, with the launch of its Integrated Hybrid feature for Azure Quantum. Hybrid quantum applications with a mix of classical and quantum code together will empower todays quantum innovators to create a new class of algorithms, said Microsofts press release

The three predominant cloud service providers Amazon, Microsoft and Google are all among the so-called Magnificent Seven stocks that have seen outsized gains in the past year thanks to the AI boom.

These three companies can be directly linked to the AI programs underlying this trend; Anthropic hosts mainly on Amazons AWS, OpenAI hosts its applications such as ChatGPT on Microsofts Azure, while Midjourney is hosted on Google cloud.

The stocks have gained 74%, 58.8% and 54.4% respectively in the year to 21 November. In the same period, WCLD gained 22.4%. WCLDs top three holdings as of

21 November are Crowdstrike [CRWD], ZScaler [ZS] and Shopify [SHOP]. Their share prices gained 98.48%, 71.01%, and 100.89% in the same time period.

Disclaimer Past performance is not a reliable indicator of future results.

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Which Cloud Stocks are Benefitting from the AI Boom? - Opto RoW

Every investor wants big gains. But, not every trade pans out as hoped. Plenty of "surefire mega-winners" end up crashing and burning because their risks are underestimated while their upsides are overblown. Names like action-camera maker GoPro or meal kit company Blue Apron (now owned by Wonder Group) come to mind. At one point both stocks were all the rage. Then reality struck, upending each of them.

Those flops don't necessarily mean you have to give up hope on finding a mega-winner though. It just means you need a stricter set of criteria, searching for companies with a superior product or service doing business in proven, sustainable growth markets.

To this end, here's a closer look at three stocks that could turn a $1,000 investment in them into a $5,000 holding in a matter of years. In all three cases, most investors aren't seeing an important detail about their respective businesses, or aren't looking far enough into the future.

You likely know companies like Nvidia, Intel, and Dell Technologies make the technological brains found within a data center. But have you ever thought about who assembles all of this equipment into a final, functioning product? It's not Dell or Intel. Companies like Super Micro Computer (SMCI -0.34%) handle this work. And there's plenty of it.

Super Micro Computer describes itself as "a leading provider of application-optimized, high-performance server and storage solutions that address a broad range of computational-intensive workloads." It goes on to explain its "server Building Block Solutions coupled with extensive in-house design and manufacturing enables the company to rapidly develop, build, and test server and storage systems, subsystems, and accessories with unique configurations."

In other words, while a customer may want to utilize a specific brand of computer processors in its data centers, that organization actually calls Super Micro Computer to make it happen. Genesis Cloud chose Super Micro to help build its new machine-learning apparatus using Nvidia's purpose-built HGX100 artificial intelligence (AI) processors, for instance. Web-hosting outfit Absolute Hosting tapped Super Micro Computer to build its network of virtual private servers around Advanced Micro Devices' EPYC processor.

And business has been good. Last quarter's top line of $2.1 billion was up 14% year over year, extending a long streak of comparable growth. Earnings are growing accordingly.

Now take a step back and look at the bigger picture. As much as the artificial intelligence and cloud computing markets have grown in just the past few years, they've still only scratched the surface of their eventual size. Technology market research outfit IDC believes the cloud computing and storage infrastructure market will grow by more than 11% per year through 2027, while Straits Research expects the artificial intelligence infrastructure market to expand at an average pace of nearly 21% through 2030.

Both tailwinds of course bode well for Super Micro Computer attracting sustained investor interest, particularly in light of its competitive edge. That is, it's honing in on one of the fast-growing AI market's unexpected challenges. As CEO Charles Liang explained during the company's fiscal 2024 first-quarter earnings call, "Our high power efficiency systems, free-air and liquid-cooling expertise has become one of our key differentiators of success." It matters since, as Liang adds, "I anticipate that up to 20% or more of global data centers will transition to liquid-cooled solutions in just a few years."

Amazon (AMZN 0.02%) is the Western Hemisphere's dominant e-commerce name. This dominance isn't the reason Amazon shares could generate 400% returns by 2030 though. In fact, rising operating costs and improving competition somewhat threaten the company's online shopping market leadership.

Rather, the reason to take a shot on Amazon stock right now is the potential it has on a couple of other fronts. One of these opportunities is the aforementioned cloud computing.

In terms of revenue, e-commerce and digital content services (like video and music streaming) are Amazon's biggest businesses, accounting for more than 80% of its top line through the first three quarters of the year. That's not the case for operating profits, however. Although Amazon's cloud computing arm, Amazon Web Services (AWS), only makes up 16% of the company's revenue, this business drives nearly 74% of Amazon's operating profits. This income should more or less grow in step with the cloud computing market's growth.

And the other investment-worthy opportunity? While profit margins on e-commerce may now be under permanent pressure, Amazon is changing its business model in a subtle but significant way. That is, it's getting serious about advertising. Web traffic to Amazon.com is so strong that it now makes sense to allow its third-party sellers to pay Amazon to feature their products. The company did $12 billion worth of advertising business last quarter, but Insider Intelligence believes this full year's advertising revenue tally of $44.9 billion will reach $67.6 billion as soon as 2025.

This is high-margin revenue, too, simply leveraging the traffic Amazon.com is already drawing.

Given these initiatives and their current growth trajectories, Amazon's current annualized revenue of $550 billion could readily swell to well over $1 trillion. Net income could grow at an even faster clip as the company's more profitable cloud computing arm becomes a bigger piece of the business, expanding from around $20 billion now to on the order of $100 billion by 2030. Amazon shares will likely follow the lead of that prospective quadrupling of the company's bottom line.

Last but not least, put Symbotic (SYM -4.51%) on your watch list of stocks that could turn $1,000 into $5,000 by 2030.

It's not a household name, but there's a good chance you or someone living in your household has benefited from Symbotic's products. The company makes robotics solutions, specializing in warehouse automation. Its customers include Walmart, Target, and Albertsons just to name a few -- all companies that are ramping up their e-commerce operations at the same time they're looking for greater cost efficiency. Symbotic helps in both ways, leveraging artificial intelligence to do what once required humans to handle in a less efficient way.

Some investors may recall robotics was something of a hot-button issue a couple of years before the COVID-19 pandemic, promising growth that forever seemed around the corner. Then the pandemic took hold, further delaying the realization of the tech's potential. Interest in the technology has seemingly withered away in the meantime, for investors as well as its next batch of users.

It's an opportunity, however, you may want to put back on your radar even if most other investors haven't.

See, with a handful of usage cases now proving the potential of this inventory-handling solution, would-be customers are becoming interested again. Indeed, market research outfit LogisticsIQ believes the warehouse automation market is set to grow at an average annualized pace of 15% between now and 2028, while Mordor Intelligence puts the growth rate figure closer to 16%.

Symbotic is clearly capitalizing on this market's growth too, and then some. Last quarter's top line of $392 million crushed the year-ago comparison of $244 million as well as analysts' consensus estimate of just under $307 million. But that's still just the beginning. The analyst community expects Symbotic to be doing $2.5 billion worth of business by 2025, with some analysts calling for a top line of $4.0 billion in 2026. That's more than three times its top line of $1.1 billion for its recently completed fiscal year.

The real story here not enough investors are seeing yet, however, is the bottom line. The company's been in the red for most of its existence, but now with enough scale and enough market growth ahead, sustainable profits are in sight. Symbotic swung to an EBITDA profit of $13 million for the quarter ending in September, in fact, and analysts expect the company to sustain this trend, turning last fiscal year's per-share loss of $0.37 into a profit of $0.04 this year en route to earnings of $0.57 per share next fiscal year.

Trading around $52 per share, Symbotic's present price doesn't even come close to reflecting the company's potential profits come 2030. A bottom line in the ballpark of $2.00 (or maybe even more) per share by then isn't out of the question.

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3 Stocks That Could Turn $1,000 Into $5,000 by 2030 - The Motley Fool

Opinion

Storing online data in perpetuity is not just about photos and texts but thoughts and ideas. Platforms such as WordPress are starting to act, but it must be at a realistic price

Sat 25 Nov 2023 11.00 EST

Way back in 2004 the two founders of Google, Larry Page and Sergey Brin, thought that it would be a cool idea to scan all the printed books in the world and make them available online. This was at the time when their companys motto (apart from the guff about not being evil) was to organise all the worlds information. Given that the obvious places to look for large collections of books are university libraries, they decided to start there, so they set out to persuade university librarians to let them scan their holdings.

One of the first institutions they approached was a very large American university: they went to visit its librarian and found him very supportive of their ambitious project. Accordingly, the deal was easily sealed. Afterwards, though, the boys noticed that their librarian friend seemed pensive, and so asked him what was wrong. Nothings wrong, he replied. Im just wondering how we can ensure that these scans will be available to readers in 400 years time when Google is no longer around. Because it wont be.

When the librarian told me the story, he remarked that the two lads looked astonished: the thought that Google might be mortal seemed never to have occurred to them. But of course he was right: the lives of most corporations are short. In the US, for example, average lifespan of S&P 500 companies is 21 years and declining. So if we wish to ensure that things are preserved in perpetuity, we need to ensure the institutions that curate them are likewise very long-lived. Given that, it seemed appropriate that our conversation was taking place in the university library in Cambridge, an institution that has been around for more than 800 years and may well be around for another 800.

With digital artefacts, however, preservation involves more than just the longevity of buildings and institutions; it also involves continuity of the technology needed to access older digital artefacts. Its like the problem of how now to view those charming VHS videos you shot when the kids were small but on steroids. Theres a nice cartoon about this somewhere that shows a Nasa control room at the moment when one of the agencys 30-year-old probes has just begun sending back data from deep space. Staff members are joyously celebrating and back-slapping. And then a guy asks: Can anyone here remember how to install Windows 95?

As our world becomes remorselessly digitised, we should be worried about this. When historians of the future start digging for the records of our time they will encounter many black holes. This applies not just to institutions and corporations, but also to each one of us. Think of the billions of photographs we cheerfully upload to social media every day; they are now stored in the cloud of giant server farms owned by tech companies. But when you die, they will be effectively gone for good unless you have thoughtfully arranged access to your account for a friend or family member. Likewise for all your emails and tweets, not to mention those Facebook, Instagram, WhatsApp and Signal chats that you so enjoyed and which charted your social life. All gone once the grim reaper has called, unless there are arrangements in place for the storage of and access to them in perpetuity.

Apart from social media posts, the other invaluable source for future social historians seeking insight into the ways humans lived in the run-up to climate catastrophe is the blogosphere. This is what produces the user-generated content celebrated by the legal scholar Yochai Benkler in his book The Wealth of Networks: a space for writing and conversation that lies outside the market. Its effectively a digital instantiation of German philosopher Jrgen Habermass idea of the public sphere an area in social life where individuals can come together to freely discuss and identify societal problems. And as such its a space in which important conversations happen.

Some blogging is done on corporate platforms such as Blogger, but much of the best stuff is on personal blogs hosted by individual writers. These people (of whom I am one) pay for their own web-hosting, generally write for no payment and are difficult or impossible to censor. But when they die, their blogs generally die, and their thinking good, bad and indifferent is lost to posterity.

So it was interesting that Matt Mullenweg, the founder of the dominant WordPress blogging platform, recently came up with a proposition: Secure your online legacy for a century. That sounded like good news. The bad news was the fee: $38,000. This is clearly absurd a way of rich people assuring their precious content lives on after their death, as one critic put it. But if we were serious about preserving a record of what people are saying and thinking at this moment in human history, theres a germ of a good idea here provided it comes with a realistic price attached.

Tech tacticsA lovely essay on the ethics of Silicon Valley by Sherry Turkle on the Crooked Timber blog.

Mind the gapTim Harford tackles employment inequality and greedy jobs that eat your time on his blog.

Stylish approachCan a computer write like Eudora Welty? An intriguing essay by Randy Sparkman on the Literary Hub site probes the real utility of a large language model.

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Preserving our digital content is vital. But paying $38,000 for the privilege is not - The Guardian

Microsoft has introduced a new hardware upgrade option called Azure Boost designed to improve the performance of virtual machines on its cloud computing platform.

In an explainer, the company outlined how Azure Boost looks to [offload] server virtualization processes traditionally performed by the hypervisor and host OS onto purpose-built software and hardware.

Microsoft says that customers can expect a range of benefits including improved networking, revised storage, performance, and security.

Microsoft said that Azure Boost-compatible VM hosts contain the new Microsoft Azure Network Adapter (MANA), which means up to 200 Gbps bandwidth.

Offloading storage operations also sees improvements, with up to 17.3 GBps and 3.8 million IOPS for local storage and up to 12.5 GBps throughput and 650 K IOPS for remote storage.

The cloud provider has confirmed that 17 instance types are already supported, and future Azure virtual machines will also be compatible with Azure Boost.

The explainer confirms that Azure Boost applies to both Linux VMs and Windows VMs, and already, some versions of Ubuntu (20.04 and 22.04 LTS) and Windows Server (2016, 2019, and 2022), among others, have support for the MANA driver (via The Register).

AWS has a similar setup, which it calls Nitro, which underpins the EC2 instances. Like Azure Boost, it promises to offload functions to dedicated hardware and software, in turn improving performance and optimizing cost efficiency.

Whether youre an AWS customer or an Azure customer preparing to take advantage of Boost, the performance enhancements could allow you to use fewer resources, which is better for both the environment and your businesss bank account.

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Microsoft unveils mysterious "Azure Boost" feature that could give ... - TechRadar