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Should you be considering investing in cloud computing stocks despite the tech rout?

When stock markets crash, it is generally the “most expensive” stocks that suffer most and see the biggest drops in their valuation. Investor psychology…

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When stock markets crash, it is generally the “most expensive” stocks that suffer most and see the biggest drops in their valuation. Investor psychology means that risk appetite plunges when investors are presented with losses. Stocks with valuations seen as stretched, usually because hopes were high for future growth in revenues and profits when markets were feeling optimistic, usually drop quickest.

That often starts a tailspin as more investors sell out in protest at losses incurred (even if they are still in profit over the lifetime of the investment), depressing valuations further.

It’s a scenario veteran investors will be familiar with from the dotcom crash in 2000 and, though less tech-centric, the stock market plunge of 2008/09 during the international financial crisis.

The high growth tech sector has also suffered badly this time around and, like in 2000, has led the stock market slump of 2022. The tech-focused Nasdaq index is, despite something of a recovery over the height of summer, down almost 20% this year and many analysts expect further pain before a sustainable recovery eventually establishes itself.

nasdaq composite

But while tech valuations were undoubtedly pumped up by a combination of years of easy money flooding the system, something in common with the run-up to the bursting of the dotcom bubble, there are also profound differences.

Ben Rogoff, the lead manager of the Polar Capital Technology Trust, which controls assets of around £3 billion, describes the lead-up to the dotcom crash as featuring a ”much higher level of capital intensity, a lack of profits — or, indeed, revenue — and a far briefer timeline between inception and initial public offering on the stock market”.

While it’s a description that does hold true for some tech stocks, EV start-ups spring immediately to mind, Mr Rogoff believes those factors are much less of an influence this time around. He is broadly hopeful about the general economic outlook and believes that “some of the inflation will, in time, be best understood as another pandemic hangover.”

If that turns out to be the case, inflation may start to drop with less aggressive interest rate hikes by central banks, especially the Fed, than were predicted a couple of months ago. That would be expected to benefit the suffering tech sector, especially companies with strong fundamentals (revenues and profits). However, it will most likely take longer for investors to return en mass to more speculative bets on companies that are yet to generate significant revenues or even profit.

Why cloud computing providers are expected to lead the tech recovery

There is one sub-sector of tech that many believe is particularly well-positioned to see valuations roaring back when market confidence starts to return – cloud computing providers.

Like the broader tech sector, cloud computing stocks suffered sharp falls in their valuations earlier this year. But there is a feeling among many analysts and market commentators that much of that was being swept up in the general market and sector sell-off. As Elliott Robinson, a partner at Bessemer Venture Partners recently stated “we haven’t seen the fundamentals of that basket of businesses really fall off a cliff”.

As a result, and after strong quarterly results and optimistic full-year forecasts, cloud companies have recently regained some ground. And in the mid-to-long term the prospects for cloud computing providers, and companies which offer products and services that enable cloud computing, look very positive.

It’s a generally high-margin sector that benefits from huge scaleability and the sector’s growth prospects for the next several years look very strong. Statista data indicates a 21.27% leap in revenues for public cloud service providers worldwide from $494.65 billion this year to $599.84 billion in 2023.

Public cloud services end-user spending worldwide from 2017 to 2023(in billion U.S. dollars)

market chart

Source: Statista

A research report by Market Research Future (MRFR), titled “Public Cloud Market”, states the market could be worth as much as $1386.14 billion by 2030, growing at a compound annual growth rate of 21.4%. That’s huge growth and possible because the cloud computing market is, while already huge, still at a relatively early stage in its maturity cycle as a sector.

Rogoff explains the remaining potential for growth for cloud computing companies with:

“The cloud is still, we believe, around mid-20s-penetrated, so there’s still three times more computing happening outside of the cloud than in the cloud. That says to me we should have years ahead of growth for those companies.”

Cloud computing sector stocks that are bouncing back strong

Almost all the cloud computing stocks and investment vehicles UK-based investors can target for significant or direct exposure to the market are U.S. based. The UK, and Europe, havn’t produced many really significant cloud computing companies yet, with the arguable exception of France’s OVHcloud, whose share price hasn’t yet shown any signs of recovery.

Some of the cloud computing market companies that have recently done well include:

GitLab

gitlab inc

GitLab develops tools that help software developers manage source code and saw its valuation plunge by 75% during the tech sell-off that played out between November and April this year. However, despite missing analysts’ forecasts, the company registering 75% year-on-year revenue growth in its latest set of result saw Goldman Sachs upgrade its rating on the stock from the equivalent of hold to buy, writing in a note to investors:

“In the near-term, GTLB is likely to see a more steady demand backdrop (relative to discretionary and complex IT solutions) as it provides key cost savings and operational efficiencies.”

The company’s share price has doubled in three months and could have plenty of growth left in it over the next several years.

Confluent

confluent inc

Another big gainer in the cloud computing sector has been data processing software developer Confluent, which is up around 80% since mid-May and earlier this month posted 58% revenue growth for the second quarter. It also forecast growth for the year to be a minimum 46%.

Confluent has riden out the storm because, as CEO Jay Kreps told analysts at the most recent earnings call, its technology:

“…sits in the operational stack powering applications that directly serve critical business operations and real-time customer experiences. Given this criticality, it can’t be switched off without a complete disruption to the operations of the business.”

Atlassian

atlassian

Atlassian, which provides collaboration tools commonly used by software developers, is another stock closely tied to the cloud computing sector that has seen strong recent share price growth. Its valuation jumped 36% after Confluent’s quarterly results were published and has gained around 65% in the past three months.

Big Tech – Cloud Computing Providers

The three biggest public cloud computing platforms, Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform, are owned by three of the world’s biggest companies. While they are now big enough and profitable enough that they are a big influence on the overall valuation of these companies (AWS has the biggest influence on its parent company’s valuation and Google Cloud Platform the least), the don’t offer direct exposure to the sector because they are one part of bigger groups.

Alibaba, IBM and Oracle are also larger tech groups with significant exposure to cloud computing.

amazon leads

Source: Statista

The Amazon share price is still down over 21% for the year and AWS’s dominant position in the public cloud market could make it worth a look at its current levels. There is also a chance that AWS will be spun out of Amazon as an independent company at some point, something which many analysts believe would see its valuation rocket.

A much higher margin business than retail, in 2021 AWS accounted for just 13% of Amazon’s revenue but nearly three-quarters of their operating profit. This year that share of the group’s operating profit will almost certainly rise again.

chart2

Source: The Visual Capitalist

WisdomTree Cloud Computing Fund

etf

Finally, broad, diversified exposure to the cloud computing sector can be achieved through the WisdomTree Cloud Computing Fund, which is exchange traded and invests in normally 90-100 companies exposed to the sector. However, one thing to keep in mind is that the fund is also invested in cloud computing sector companies heavily exposed to consumer spending, like Shopify, which are recovering less well.

There is a growing choice when it comes to investment exposure to the cloud computing market and it’s one investors would do well to have on their radar. Like the rest of the economy, the sector may still experience further volatility and potential valuation losses in the near term. But mid to long term, the successful companies in this sector should enjoy some of the best rates of growth available to investors.

The post Should you be considering investing in cloud computing stocks despite the tech rout? first appeared on Trading and Investment News.

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United Airlines adds new flights to faraway destinations

The airline said that it has been working hard to "find hidden gem destinations."

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Since countries started opening up after the pandemic in 2021 and 2022, airlines have been seeing demand soar not just for major global cities and popular routes but also for farther-away destinations.

Numerous reports, including a recent TripAdvisor survey of trending destinations, showed that there has been a rise in U.S. traveler interest in Asian countries such as Japan, South Korea and Vietnam as well as growing tourism traction in off-the-beaten-path European countries such as Slovenia, Estonia and Montenegro.

Related: 'No more flying for you': Travel agency sounds alarm over risk of 'carbon passports'

As a result, airlines have been looking at their networks to include more faraway destinations as well as smaller cities that are growing increasingly popular with tourists and may not be served by their competitors.

The Philippines has been popular among tourists in recent years.

Shutterstock

United brings back more routes, says it is committed to 'finding hidden gems'

This week, United Airlines  (UAL)  announced that it will be launching a new route from Newark Liberty International Airport (EWR) to Morocco's Marrakesh. While it is only the country's fourth-largest city, Marrakesh is a particularly popular place for tourists to seek out the sights and experiences that many associate with the country — colorful souks, gardens with ornate architecture and mosques from the Moorish period.

More Travel:

"We have consistently been ahead of the curve in finding hidden gem destinations for our customers to explore and remain committed to providing the most unique slate of travel options for their adventures abroad," United's SVP of Global Network Planning Patrick Quayle, said in a press statement.

The new route will launch on Oct. 24 and take place three times a week on a Boeing 767-300ER  (BA)  plane that is equipped with 46 Polaris business class and 22 Premium Plus seats. The plane choice was a way to reach a luxury customer customer looking to start their holiday in Marrakesh in the plane.

Along with the new Morocco route, United is also launching a flight between Houston (IAH) and Colombia's Medellín on Oct. 27 as well as a route between Tokyo and Cebu in the Philippines on July 31 — the latter is known as a "fifth freedom" flight in which the airline flies to the larger hub from the mainland U.S. and then goes on to smaller Asian city popular with tourists after some travelers get off (and others get on) in Tokyo.

United's network expansion includes new 'fifth freedom' flight

In the fall of 2023, United became the first U.S. airline to fly to the Philippines with a new Manila-San Francisco flight. It has expanded its service to Asia from different U.S. cities earlier last year. Cebu has been on its radar amid growing tourist interest in the region known for marine parks, rainforests and Spanish-style architecture.

With the summer coming up, United also announced that it plans to run its current flights to Hong Kong, Seoul, and Portugal's Porto more frequently at different points of the week and reach four weekly flights between Los Angeles and Shanghai by August 29.

"This is your normal, exciting network planning team back in action," Quayle told travel website The Points Guy of the airline's plans for the new routes.

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Walmart launches clever answer to Target’s new membership program

The retail superstore is adding a new feature to its Walmart+ plan — and customers will be happy.

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It's just been a few days since Target  (TGT)  launched its new Target Circle 360 paid membership plan. 

The plan offers free and fast shipping on many products to customers, initially for $49 a year and then $99 after the initial promotional signup period. It promises to be a success, since many Target customers are loyal to the brand and will go out of their way to shop at one instead of at its two larger peers, Walmart and Amazon.

Related: Walmart makes a major price cut that will delight customers

And stop us if this sounds familiar: Target will rely on its more than 2,000 stores to act as fulfillment hubs. 

This model is a proven winner; Walmart also uses its more than 4,600 stores as fulfillment and shipping locations to get orders to customers as soon as possible.

Sometimes, this means shipping goods from the nearest warehouse. But if a desired product is in-store and closer to a customer, it reduces miles on the road and delivery time. It's a kind of logistical magic that makes any efficiency lover's (or retail nerd's) heart go pitter patter. 

Walmart rolls out answer to Target's new membership tier

Walmart has certainly had more time than Target to develop and work out the kinks in Walmart+. It first launched the paid membership in 2020 during the height of the pandemic, when many shoppers sheltered at home but still required many staples they might ordinarily pick up at a Walmart, like cleaning supplies, personal-care products, pantry goods and, of course, toilet paper. 

It also undercut Amazon  (AMZN)  Prime, which costs customers $139 a year for free and fast shipping (plus several other benefits including access to its streaming service, Amazon Prime Video). 

Walmart+ costs $98 a year, which also gets you free and speedy delivery, plus access to a Paramount+ streaming subscription, fuel savings, and more. 

An employee at a Merida, Mexico, Walmart. (Photo by Jeffrey Greenberg/Universal Images Group via Getty Images)

Jeff Greenberg/Getty Images

If that's not enough to tempt you, however, Walmart+ just added a new benefit to its membership program, ostensibly to compete directly with something Target now has: ultrafast delivery. 

Target Circle 360 particularly attracts customers with free same-day delivery for select orders over $35 and as little as one-hour delivery on select items. Target executes this through its Shipt subsidiary.

We've seen this lightning-fast delivery speed only in snippets from Amazon, the king of delivery efficiency. Who better to take on Target, though, than Walmart, which is using a similar store-as-fulfillment-center model? 

"Walmart is stepping up to save our customers even more time with our latest delivery offering: Express On-Demand Early Morning Delivery," Walmart said in a statement, just a day after Target Circle 360 launched. "Starting at 6 a.m., earlier than ever before, customers can enjoy the convenience of On-Demand delivery."

Walmart  (WMT)  clearly sees consumers' desire for near-instant delivery, which obviously saves time and trips to the store. Rather than waiting a day for your order to show up, it might be on your doorstep when you wake up. 

Consumers also tend to spend more money when they shop online, and they remain stickier as paying annual members. So, to a growing number of retail giants, almost instant gratification like this seems like something worth striving for.

Related: Veteran fund manager picks favorite stocks for 2024

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President Biden Delivers The “Darkest, Most Un-American Speech Given By A President”

President Biden Delivers The "Darkest, Most Un-American Speech Given By A President"

Having successfully raged, ranted, lied, and yelled through…

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President Biden Delivers The "Darkest, Most Un-American Speech Given By A President"

Having successfully raged, ranted, lied, and yelled through the State of The Union, President Biden can go back to his crypt now.

Whatever 'they' gave Biden, every American man, woman, and the other should be allowed to take it - though it seems the cocktail brings out 'dark Brandon'?

Tl;dw: Biden's Speech tonight ...

  • Fund Ukraine.

  • Trump is threat to democracy and America itself.

  • Abortion is good.

  • American Economy is stronger than ever.

  • Inflation wasn't Biden's fault.

  • Illegals are Americans too.

  • Republicans are responsible for the border crisis.

  • Trump is bad.

  • Biden stands with trans-children.

  • J6 was the worst insurrection since the Civil War.

(h/t @TCDMS99)

Tucker Carlson's response sums it all up perfectly:

"that was possibly the darkest, most un-American speech given by an American president. It wasn't a speech, it was a rant..."

Carlson continued: "The true measure of a nation's greatness lies within its capacity to control borders, yet Bid refuses to do it."

"In a fair election, Joe Biden cannot win"

And concluded:

“There was not a meaningful word for the entire duration about the things that actually matter to people who live here.”

Victor Davis Hanson added some excellent color, but this was probably the best line on Biden:

"he doesn't care... he lives in an alternative reality."

*  *  *

Watch SOTU Live here...

*   *   *

Mises' Connor O'Keeffe, warns: "Be on the Lookout for These Lies in Biden's State of the Union Address." 

On Thursday evening, President Joe Biden is set to give his third State of the Union address. The political press has been buzzing with speculation over what the president will say. That speculation, however, is focused more on how Biden will perform, and which issues he will prioritize. Much of the speech is expected to be familiar.

The story Biden will tell about what he has done as president and where the country finds itself as a result will be the same dishonest story he's been telling since at least the summer.

He'll cite government statistics to say the economy is growing, unemployment is low, and inflation is down.

Something that has been frustrating Biden, his team, and his allies in the media is that the American people do not feel as economically well off as the official data says they are. Despite what the White House and establishment-friendly journalists say, the problem lies with the data, not the American people's ability to perceive their own well-being.

As I wrote back in January, the reason for the discrepancy is the lack of distinction made between private economic activity and government spending in the most frequently cited economic indicators. There is an important difference between the two:

  • Government, unlike any other entity in the economy, can simply take money and resources from others to spend on things and hire people. Whether or not the spending brings people value is irrelevant

  • It's the private sector that's responsible for producing goods and services that actually meet people's needs and wants. So, the private components of the economy have the most significant effect on people's economic well-being.

Recently, government spending and hiring has accounted for a larger than normal share of both economic activity and employment. This means the government is propping up these traditional measures, making the economy appear better than it actually is. Also, many of the jobs Biden and his allies take credit for creating will quickly go away once it becomes clear that consumers don't actually want whatever the government encouraged these companies to produce.

On top of all that, the administration is dealing with the consequences of their chosen inflation rhetoric.

Since its peak in the summer of 2022, the president's team has talked about inflation "coming back down," which can easily give the impression that it's prices that will eventually come back down.

But that's not what that phrase means. It would be more honest to say that price increases are slowing down.

Americans are finally waking up to the fact that the cost of living will not return to prepandemic levels, and they're not happy about it.

The president has made some clumsy attempts at damage control, such as a Super Bowl Sunday video attacking food companies for "shrinkflation"—selling smaller portions at the same price instead of simply raising prices.

In his speech Thursday, Biden is expected to play up his desire to crack down on the "corporate greed" he's blaming for high prices.

In the name of "bringing down costs for Americans," the administration wants to implement targeted price ceilings - something anyone who has taken even a single economics class could tell you does more harm than good. Biden would never place the blame for the dramatic price increases we've experienced during his term where it actually belongs—on all the government spending that he and President Donald Trump oversaw during the pandemic, funded by the creation of $6 trillion out of thin air - because that kind of spending is precisely what he hopes to kick back up in a second term.

If reelected, the president wants to "revive" parts of his so-called Build Back Better agenda, which he tried and failed to pass in his first year. That would bring a significant expansion of domestic spending. And Biden remains committed to the idea that Americans must be forced to continue funding the war in Ukraine. That's another topic Biden is expected to highlight in the State of the Union, likely accompanied by the lie that Ukraine spending is good for the American economy. It isn't.

It's not possible to predict all the ways President Biden will exaggerate, mislead, and outright lie in his speech on Thursday. But we can be sure of two things. The "state of the Union" is not as strong as Biden will say it is. And his policy ambitions risk making it much worse.

*  *  *

The American people will be tuning in on their smartphones, laptops, and televisions on Thursday evening to see if 'sloppy joe' 81-year-old President Joe Biden can coherently put together more than two sentences (even with a teleprompter) as he gives his third State of the Union in front of a divided Congress. 

President Biden will speak on various topics to convince voters why he shouldn't be sent to a retirement home.

According to CNN sources, here are some of the topics Biden will discuss tonight:

  • Economic issues: Biden and his team have been drafting a speech heavy on economic populism, aides said, with calls for higher taxes on corporations and the wealthy – an attempt to draw a sharp contrast with Republicans and their likely presidential nominee, Donald Trump.

  • Health care expenses: Biden will also push for lowering health care costs and discuss his efforts to go after drug manufacturers to lower the cost of prescription medications — all issues his advisers believe can help buoy what have been sagging economic approval ratings.

  • Israel's war with Hamas: Also looming large over Biden's primetime address is the ongoing Israel-Hamas war, which has consumed much of the president's time and attention over the past few months. The president's top national security advisers have been working around the clock to try to finalize a ceasefire-hostages release deal by Ramadan, the Muslim holy month that begins next week.

  • An argument for reelection: Aides view Thursday's speech as a critical opportunity for the president to tout his accomplishments in office and lay out his plans for another four years in the nation's top job. Even though viewership has declined over the years, the yearly speech reliably draws tens of millions of households.

Sources provided more color on Biden's SOTU address: 

The speech is expected to be heavy on economic populism. The president will talk about raising taxes on corporations and the wealthy. He'll highlight efforts to cut costs for the American people, including pushing Congress to help make prescription drugs more affordable.

Biden will talk about the need to preserve democracy and freedom, a cornerstone of his re-election bid. That includes protecting and bolstering reproductive rights, an issue Democrats believe will energize voters in November. Biden is also expected to promote his unity agenda, a key feature of each of his addresses to Congress while in office.

Biden is also expected to give remarks on border security while the invasion of illegals has become one of the most heated topics among American voters. A majority of voters are frustrated with radical progressives in the White House facilitating the illegal migrant invasion. 

It is probable that the president will attribute the failure of the Senate border bill to the Republicans, a claim many voters view as unfounded. This is because the White House has the option to issue an executive order to restore border security, yet opts not to do so

Maybe this is why? 

While Biden addresses the nation, the Biden administration will be armed with a social media team to pump propaganda to at least 100 million Americans. 

"The White House hosted about 70 creators, digital publishers, and influencers across three separate events" on Wednesday and Thursday, a White House official told CNN. 

Not a very capable social media team... 

The administration's move to ramp up social media operations comes as users on X are mostly free from government censorship with Elon Musk at the helm. This infuriates Democrats, who can no longer censor their political enemies on X. 

Meanwhile, Democratic lawmakers tell Axios that the president's SOTU performance will be critical as he tries to dispel voter concerns about his elderly age. The address reached as many as 27 million people in 2023. 

"We are all nervous," said one House Democrat, citing concerns about the president's "ability to speak without blowing things."

The SOTU address comes as Biden's polling data is in the dumps

BetOnline has created several money-making opportunities for gamblers tonight, such as betting on what word Biden mentions the most. 

As well as...

We will update you when Tucker Carlson's live feed of SOTU is published. 

Tyler Durden Fri, 03/08/2024 - 07:44

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