There is a gamut of companies operating in the cloud computing space, including the likes of Citrix Systems, Inc. (NASDAQ:CTXS), Rackspace Hosting, Inc. (NYSE:RAX), Red Hat, Inc. (NYSE:RHT), salesforce.com, inc. (NYSE:CRM), Cisco Systems, Inc. (NASDAQ:CSCO), Juniper Networks, Inc. (NYSE:JNPR), VMware, Inc. (NYSE:VMW), EMC Corporation (NYSE:EMC), International Business Machines Corp. (NYSE:IBM), Oracle Corporation (NASDAQ:ORCL) and Microsoft Corporation (NASDAQ:MSFT), just to name a few that have a hand in the cloud computing cookie jar.
Question is, which will pull out the biggest cookie? There are three key types of primary cloud computing, including Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS).
It appears that the IaaS sector will be getting the larger slice of the proverbial pie over the interim. Gartner expects this segment (IaaS) to grow at a five year compounded annual growth rate of 41%, compared to 27.7% for PaaS and only 19.5% for SaaS.
IaaS is a bit more robust and is a greater form of network optimization and outsourcing, where I agree with Gartner that IaaS will be the ultimate desired endpoint by a majority of enterprises, allowing them to fully outsource infrastructure and leading to lower upfront and servicing costs.
SaaS includes the likes of major CRM player salesforce.com, inc. (NYSE:CRM); PasS has major players Microsoft Corporation (NASDAQ:MSFT), International Business Machines Corp. (NYSE:IBM) and Google Inc (NASDAQ:GOOG) offering key products. So what are the best ways to play the fastest growing IaaS market? Major IaaS platforms include Rackspace Hosting, Inc. (NYSE:RAX) and Oracle Corporation (NASDAQ:ORCL).
Rackspace Hosting, Inc. (NYSE:RAX) offers Rackspace Cloud and Oracle offers Oracle Infrastructure as a Service. Oracle has also been snatching up a number of other cloud and SaaS companies to expand its offerings in the sector. This includes acquiring RightNow, Taleo and Eloqua in 2012.
Oracle managed to only miss earnings last quarter by $0.01, but was down over 7.5%, making the stock even more undervalued and creating a great buying opportunity. Oracle also calls value investor Seth Klarman one of its top investors, with over 11% of his Baupost Group hedge fund invested in the company at the end of 2012 (check out Klarman’s newest picks).
Rackspace Hosting, Inc. (NYSE:RAX) provides hosting solutions, including information technology (IT) as a service, managing web-based IT systems for small and medium-sized businesses, as well as large enterprises.
Rackspace Hosting, Inc. (NYSE:RAX) managed to post EPS of $0.21 in the fourth quarter, compared to $0.18 for the same quarter last year, but still coming in below consensus of $0.22. After the earnings miss, Stifel Nicholas downgraded the company to a hold, citing that the growth deceleration for 2013 appears more significant than expected. Hedge funds have turned bearish on the stock of late, with the number of hedge funds owning the stock declining by 19% from the third quarter to fourth quarter of 2012.
Other Cloud Plays
As with any industry, there are a number of components that go into making a final product. For example, although GM and Ford “make” cars, there are tons of OEMs (original equipment manufacturers) that supply these parts, including the likes of Lear and Delphi.
Other widely talked about “cloud” companies, Red Hat, Inc. (NYSE:RHT) and VMware, Inc. (NYSE:VMW) are just parts of the bigger cloud computing puzzle, operating in the virtualization space. Virtualization is one way that the cloud can be delivered, where cloud computing is an approach to delivering services.
EMC Corporation (NYSE:EMC) is one of the world’s largest suppliers of enterprise storage systems. Coincidentally, it also owns 80% of VMWare, the largest provider of server virtualization software. EMC focuses on data storage solutions for enterprises and government entities around the world. Its products are used in conjunction with a variety of computing platforms that support key business processes.
