The Cloud

Cloud computing is silent, invisible and powerful.  We store thousands of photos on Facebook, and stream Netflix and Spotify on demand with no greater effort than touching a button.

That’s fitting.  In the new Gilded Age, cloud computing is the new electric power grid.  Entrepreneurs have been super-charged by scalable pools of ubiquitous, on-demand computing resources.  And they have come through.  Since 2009, they cracked the code on self-driving cars, gene-editing, real-time biometrics and language translation – just to name a few.

It was not that long ago the first modern public cloud computing platform was born.  In 2006 Amazon Web Services evolved out of a decision by Amazon to sell excess storage and compute power to third parties.  It started a paradigm shift.

Over the years, Fortune 100 companies like General Electric and Netflix were attracted.  They could buy storage and compute power as needed and at a fraction of the cost of building their own facilities.  Businesswise, it was no-brainer.  It was cost effective and there were no infrastructure hardware headaches.

A 2016 report from consultants McKinsey & Co, “IT: From build to consume, found that  “more large enterprises are likely to move workloads away from traditional and virtualized environments toward the cloud, at a rate and pace that is expected to be far quicker than in the past.”

While smaller companies and startups, often cash strapped, get the same resources and cost savings, the main attraction is scale.  Many have been able to develop disruptive technologies that would have been otherwise cost prohibitive.

Ride hailing company Uber built real-time, logistic software in the cloud to monitor and match-up millions of riders and taxis on a global scale.  Spotify built a database in the cloud capable of streaming on-demand any song, from any album for tens of millions of Spotify customers.
All of that cheap compute has been a boon for big research ideas, too.

GlaxoSmithKline and Alphabet’s Verily unit are using machine learning to build tiny, implantable robots capable of zapping nerves.  The bots could wipe out chronic illnesses like arthritis, Crohn’s disease and diabetes.  Microsoft is writing cloud software to store digital data on synthetic DNA.  They have already been able to cram 200MB of data onto a surface no bigger than the tip of a sharpened pencil.  The entire public content of the Internet could fit into a shoe box.

Shifts this big create massive opportunities for investors.  Research firm Gartner projects the public cloud computing sector grew to be worth  $204 billion in 2016. That was up 16.5% over 2015.  And the future looks even brighter.

My job is to find the winners.  While the large public clouds from Amazon, Microsoft and Alphabet are growing fast, there are other investment angles you should know.

In addition to all of the new software companies that will be born, building out physical data centers is an important aspect of cloud computing. Several public companies play in this field.  It a specialized, mission critical business involving complex heating and air-conditioning schemes, massive power demands and miles upon miles of fiber optic cable.

The idea that powerful data centers are still linked by miles of bulky cable in this day and age seems anathema. Yet they too are vital.

Facebook and Microsoft are set to build a 160 terabit per second transoceanic cable that will connect massive data centers in northern Virginia to the northern coast of Spain in Bilbao. From there, junction points will spider-web into Africa, the Middle East and Asia, where they will connect with other massive data centers.

And every network equipment maker wants new modulators, switches and other fiber components that will allow the centers and service providers to get the long haul bandwidth to the end customers.  Many of the companies making this equipment will make their investors rich.

This is just the start of the cloud computing story.  This is that Edison light bulb moment. It gives bright people access to unlimited computer power. Investors in the industry will have a field day.