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Cloud computing stocks can be great growth plays, but they can also quickly collapse on concerns about slowing sales growth, widening losses, and lofty valuations. That's exactly what happened to two recent cloud IPOs -- Twilio (NYSE:TWLO) and Nutanix (NASDAQ:NTNX).

Twilio went public at $15 per share last June, soared to nearly $70 three months later, then fell back to the mid-$20s. Nutanix went public at $16 per share last September, peaked in the mid-$40s in early October, then stumbled back to the mid-teens.

Image source: Getty Images.

Let's discuss what happened to these two recent IPOs, and whether or not investors should consider them potential turnaround plays at current prices.

Twilio's cloud service delivers voice calls, SMS messages, videos, and other content for mobile apps. If developers want users to call or text each other from within their apps, they subscribe to Twilio's service and integrate its API into their apps. This is generally cheaper and more scalable than creating comparable features from scratch.

Facebook (NASDAQ:FB), for example, uses Twilio's API to enable WhatsApp and Messenger users to add other users via phone numbers. Twilio has also been gradually adding additional video, security, and enterprise administration features to this platform to boost its revenues per user.

Nutanix is the market leader in hyper-converged infrastructure (HCI) appliances and software-defined storage solutions. These products bundle traditional silos of server, storage, networking, virtualization, and data center management into a single turnkey solution.

Nutanix claims that collapsing all those product categories into a single "converged" enterprise cloud platform will gradually make data center infrastructure "invisible." This can be a cost-effective solution for younger companies which haven't installed on-site infrastructure yet, and it can help older companies pivot away from on-site private cloud models toward more flexible "hybrid" cloud models that straddle both the private and public clouds.

Twilio's sales surged 66% to$277.3 million in fiscal 2016. Its "base" revenue -- which excludes revenue from "Variable Customer Accounts" (large customers which haven't signed 12-month minimum revenue commitment contracts) jumped 79% to $245.5 million.

Image source: Uber.

However, Twilio expects just 28%-31% sales growth this year, partly due to waning business from itstop customer, Uber. During its first quarter earnings report, Twilio disclosed that Uber -- which contributed 12% of Twilio's sales during the period -- plans to use other internal or third-party platforms for its calls and texts in the future.

That bombshell caused Twilio shares toplummet 26% on May 3. That development was also troubling because another Twilio customer, Lyft, recently announced that it would start testing Vonage's (NYSE:VG) Nexmo platform as an alternative to Twilio's service.

Nutanix's sales soared 85% to $444.9 million in fiscal 2016 on growing demand for HCI solutions. Wall Street expects salesto rise another 66% this year. Those numbers look solid, but a slowdown in sequential growth last quarter indicates that sales could peak this year. Moreover, Nutanix faces tough questions regarding Hewlett-Packard Enterprise's (NYSE:HPE) recent acquisition of itsrival SimpliVity.

That $650 million buyout is troubling because it makes HPE -- which already has a massive presence in enterprise hardware, software, and services -- the second largest player in the HCI market after Nutanix. HPE will inevitably bundle SimpliVity's services with its other enterprise products -- which could render Nutanix obsolete.

The short of it is that both businesses could lose customers in the near future.

Twilio and Nutanix are both unprofitable, and analysts don't see them achieving either non-GAAP or GAAP profitability anytime soon. That's because the cost of running cloud servers, securing new customers, and offering competitive prices doesn't leave much room for profits -- unless the companies scale up dramatically.

Twilio posted a non-GAAP net loss of $0.16 per share in 2016. Due to the gradual loss of Uber, the company expects that loss to widen to $0.27-$0.30 per share this year. That bottom line decline won't be good for its cash flow -- the company's cash and equivalents already dropped 61% sequentially to just $118.4 million last quarter. This raises the troubling possibility of another secondary offering in the near future.

Nutanix's net loss in fiscal 2016 is unknown. But the company's quarterly net loss nearly tripled last quarter, and it's expected to post a non-GAAP net loss of $1.49 per share this year. On the bright side, Nutanix's cash cushion remains strong, with its cash and equivalents staying nearly flat sequentially at $226 million last quarter.

Twilio trades at 4.8 times sales, which is slightly lower than its industry average of 5.6. Nutanix's P/S ratio of 3.6 is also lower than the industry average of 5.5. Nonetheless, investors probably shouldn't consider either stock "cheap" due to their top line challenges and lack of profitability.

Both stocks remain highly speculative plays, but I'd still pick Twilio over Nutanix because it dominates a valuable niche service and faces less direct competition. Nutanix is well-poised to profit from growing demand for HCI solutions, but I have doubts that it can survive competition from HPEand other tech giants which are all aggressively expanding into the same market.

Leo Sun owns shares of Twilio. The Motley Fool owns shares of and recommends Facebook. The Motley Fool recommends Twilio. The Motley Fool has a disclosure policy.

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Better Buy: Twilio Inc vs. Nutanix Inc. - Motley Fool

What Makes NVIDIA the Semiconductor Company of the Future? PART 8 OF 16

NVIDIA (NVDA) has continued to witness strong growth in the gaming sector as eSports, virtual reality, and its Pascal-based GPUs (graphics processing unit) have driven demand.

However, the key highlight of its fiscal 2017 was its Data Center segment, which grew more than threefold from just $97 million in fiscal 4Q16 to $296 million in fiscal 4Q17, making it the second-largest business segment after Gaming.

The growth was driven by the increasing adoption of NVIDIAs Tesla P100 GPUs and the DGX-1 supercomputer by CSPs (cloud service provider) and other high-performance computing providers. NVIDIAs Tesla GPUs enable CSPs to boost processing power by fivefold and reduce costs 60%.

AI (artificial intelligence) was first adopted by hyperscale data centers such as Microsoft (MSFT), Facebook (FB), and Google (GOOG), which used AI for image recognition and voice processing. AI is now moving to the enterprise space as companies in healthcare, retail, and finance begin to use deep learning to solve problems and automate processes.

The increasing adoption of AI has encouraged several CSPs to offer AI-as-a-service.

Google is offering deep-learning capabilities on the Google Cloud Platform using NVIDIAs Tesla K80 GPUs. Users can use up to eight GPUs for their deep-learning operations for an hourly charge of $0.70 for each GPU in the United States and $0.77 for each GPU in Asia and Europe.

Even Amazon (AMZN) Web Services offers deep-learning capabilities, allowing users to use up to 16 of NVIDIAs Tesla K80 GPUs. Microsofts Azure offers similar support for up to four of NVIDIAs slightly older GPUs.

Chinas web search engine Baidu (BIDU) is also offering deep-learning capabilities on the Baidu Cloud using NVIDIAs Tesla P40 GPUs and deep learning software.

Users use this service for both training and inference acceleration for open-source deep learning frameworks such as TensorFlow and PaddlePaddle.

Chinas Tencent Cloud will soon offer deep learning capabilities on its public cloud platform using NVIDIAs Tesla P100, P40, and M40 GPU accelerators and deep learning software.The chip supplier stated that the cloud servers would integrate up to eight GPU accelerators in 1H17.

NVIDIA and Microsoft have developed thehyperscale GPU accelerator framework HGX-1, which will feature eight Tesla GPUs and will be able to connect to the CPU (central processing unit) depending on the workload. The companies plan to make the open-source, scalable HGX-1 design the standard architecture for AI cloud computing.

IBM (IBM) will soon offer GPU support on its Bluemix cloud, allowing its users to add two NVIDIA Tesla P100 GPUs. This will provide up to 4.7 teraflops of double-precision performance and 16 gigabytes of memory. IBM is also working with NVIDIA in the supercomputer space. IBMs Power8 CPUs and NVIDIAs Tesla P100 GPUs will be used in two new supercomputers for the U.S. Department of Energy.

Next, well see how NVIDIA is supporting the adoption of AI by enterprises and supercomputers.

See the rest here:
NVIDIA's Tesla GPUs Power Major Cloud Companies' AI Efforts - Market Realist