Markets

3 Best Stocks to Invest in Cloud Computing

While forecasts vary, virtually all suggest that both companies and consumers are in the midst of a substantial shift to cloud computing. Software-as-a-Service (SaaS) alone is expected to become a $106 billion industry by 2016, a 21% jump from forecasts for this year. Security, business intelligence (BI), and data storage in the cloud are also growing at phenomenal rates.

For investors, the question is how to best take advantage of this huge industry, particularly when it seems nearly every tech company on the planet claims to be the cloud provider of choice. Microsoft , IBM , and Intel are all on pace to differentiate themselves from the pack. As an added bonus, the three industry behemoths also share another common trait: an industry-leading dividend yield.

Hitting the mark

Even as cloud technologies and services remain in their early stages, it has become abundantly clear that revenue -- at least significant revenue -- is not going to come from hosting. Many of the big-time cloud providers have essentially made cloud data hosting a commodity, which is ideal for Microsoft. SaaS solutions will be a major source of growth, and there are few tech companies around that can match Microsoft's suite of products.

Though many analysts and investors focused on Microsoft's 13% drop in Windows OEM Pro and non-Pro revenues last quarter -- which explains its rather dismal stock performance year-to-date -- CEO Satya Nadella and team are delivering where it counts: his "cloud-first" mantra. Cloud revenues jumped a whopping 114% from the year-ago period, an impressive sixth straight quarter where the company enjoyed a triple-digit increase in cloud revenue.

At an annual run-rate of $5.5 billion in sales, if Microsoft is not at the top of the cloud heap, it is awfully close. And with its history of triple-digit growth rates, investors can expect more of the same when the company announces third quarter fiscal 2015 earnings later this month.

All things to all people

As the world becomes more "plugged in," entire industries are beginning to recognize the value of utilizing the data generated by consumers via mobile, PC devices, and Internet of Things-related (IoT) technologies. Amassing and storing the data via the cloud is one thing, but actually analyzing it and generating actionable results is a whole different ballgame. And that is where IBM enters the picture.

What differentiates IBM from its cloud competitors is its wide-ranging capabilities as it relates to data. From a $1 billion investment last year in its Watson super-computer unit to its recently announced $3 billion commitment to driving growth in the Internet of Things, IBM is positioning itself as a leading cloud-based, big data, and IoT leader, and it is working.

Last quarter, IBM generated $7 billion in total cloud sales, a 60% jump from the year prior. Now, some of that came from existing sales that were migrated to its cloud unit, but its $3.5 billion annual run rate of SaaS cloud revenues is nothing to sneeze at. With its recent investments and the incorporation of the IoT and big data all delivered via the cloud, IBM is a force to be reckoned with.

The nuts and bolts of the cloud

Similar to both Microsoft and IBM, despite record fourth quarter and full-year 2014 earnings, Intel shareholders have not enjoyed a great 2015. Down over 14% year-to-date, investors cannot seem to get past the stagnant PC market -- the primary source of Intel revenue. And there is something to be said for the PC-related negativity -- over 60% of revenue in the most recent quarter came from the PC unit.

But when cloud-related revenues are taken into account, Intel starts to look like the value stock it is. As with IBM, Intel recognizes that analyzing the unprecedented amounts of data the cloud will amass offers huge potential. Why? Because cloud providers require data centers and the ability to process all that information, and a look at last quarter indicates that CEO Brian Krzanich's pledge "to lead Intel into the next era" is right on track.

Not only did the Intel data center unit boast a 25% year-over-year revenue increase, the $4.1 billion in sales made up a larger portion of its total revenue. In other words, cloud-related data center revenue is becoming a key driver of growth at the company, right in line with Krzanich's strategic objectives. Just as with Microsoft and IBM, Intel offers shareholders about a 3% dividend yield.

This $19 trillion industry could destroy the Internet

One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism... The Economist is calling it "transformative"... But you'll probably just call it "how I made my millions." Don't be too late to the party -- click here for one stock to own when the Web goes dark.

The article 3 Best Stocks to Invest in Cloud Computing originally appeared on Fool.com.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of International Business Machines. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

INTC IBM MSFT

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More