Back to Earth for the Cloud

Over the past three months, the stock market’s decline in technology stocks, due to rising interest rates, has not spared any sector.

This is particularly the case for cloud computing companies.

According to the definition proposed by Jean-Paul Viger in a review of English Technologies (February 2012), cloud computing is “a revolution in the way IT resources are organized, managed, and distributed. Its operational definition announces a computing model that provides easy, on-demand network access to a common set of resources configurable computing” (as defined by the National Institute of Standards and Technology).

different models

Various models of distribution of these resources have emerged over the past 15 years, both through software use (“software as a service”, where a user accesses a remote application), and platform-IT models (“platform as a service”, where the user deploys its applications on a third-party infrastructure) or infrastructure (“Infrastructure as a Service”, where the user leases computing resources).

Other applications appeared in the field of communications or other functions within companies, which led to a wave of investments that were amplified with the COVID-19 epidemic and the reorganization of working methods (remote work, hybrid organization …).

From 1 to 200 billion dollars

In this universe, weights with an ancient history, such as Adobe (“wide trench”), sales force (“broad trench”) or PayPal (“Narrow Moat”), with a market capitalization of approximately or more than $200 billion.

rubbing their shoulders like a ‘little thumb’ yesAnd the agoraAnd the big businessAnd the BigradioAnd the can where Scenes Those worth less than $5 billion in the stock market are often in operating losses, but some are showing very rapid growth in their business.


Within a few years, many companies (often incorporated and listed in the United States) experienced an explosion in their valuation.

This momentum is captured by specific indicators, in particular the BVP Nasdaq Emerging Cloud Index.

Over the past three years, the index has nearly doubled in value (+98%), outperforming the Nasdaq (+89%) and the S&P 500 (+64%).

But over the past three months, it’s down 33%, when the Nasdaq is down 12% and the S&P 500 is down 4%.

Stratosphere assessments

As of January 28, 2022, the index had a median valuation of 10.1 times annual sales and 8.4 times forecast sales, compared to a nearly 3-fold multiplier for the S&P 500.

Some companies offer 25-30x ratios, such as snowflake (“No Moat”) which is 34 times the expected turnover, datadog (“narrow trench”) at 29x, Cloud Flare at 28x or Zscaler (“narrow trench”) at 27x or Atlassian (“narrow trench”) by 25 times.

These valuation levels mean that investors expect strong and sustainable business growth from these companies.

This also means that they will have to maintain their competitive advantage for 25 to 30 years, in market segments where the barriers to entry are sometimes very low and where the challenge is to attract customers to the solutions offered. they.

Morningstar analysts give some of these companies a “narrow trench” economic fortress rating, meaning they believe these companies should be able to maintain their competitive advantage for a decade.

This is really good, but probably not enough to justify high ratings like some of the values ​​already mentioned.

© Morningstar, 2022 – The information here is for educational purposes and is provided for informational purposes only. It is not intended and should not be considered an invitation or encouragement to buy or sell listed securities. Any comment is the opinion of its author and should not be considered a personal recommendation. The information contained in this document should not be the only source for making an investment decision. Make sure to contact a financial advisor or financial expert before making any investment decisions.

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