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Cloud Computing Meets a Brave New World

Cloud Computing Meets a Brave New World

  • By Mark Marex, Product Development Specialist

The ISE CTA Cloud Computing Index (CPQ) was launched on December 31, 2007, when the industry was still nascent and about to experience a rapid phase of expansion and maturation. During the 2010s, CPQ returned 506% on a total return basis, besting even the Nasdaq-100 (NDX) Index, which soared 426%. Its constituent basket expanded from 28 to 62 in 2019 as a result of a methodology revamp that sought to identify a wider and more suitable spectrum of companies involved in cloud computing, falling into one of three main categories (Infrastructure-as-a-Service, Platform-as-a-Service, Software-as-a-Service). With the input of the Consumer Technology Association (CTA), companies now receive points for their involvement in one or more categories (3 for IaaS, 2 for PaaS, 1 for SaaS) and are weighted accordingly. Constituents are capped at 4.5% at each index rebalance and reconstitution. Let’s review how CPQ has performed in the recent past and what its components look like today, followed by a consideration of the drivers of future performance.

ISE CTA Cloud Computing Index (CPQ) Chart 1

Of the 64 constituents in CPQ, the top 15 represented 49% of the index weight as of the end of 2Q’20. The top 32 names represented approximately 79%, while the top 5 represented 20%. The largest of these were Amazon (AMZN) and Microsoft (MSFT), with weights above 4% and returns of 49.3% and 29.0%, respectively. Most of the others in the top 15 have fared well despite the volatility and economic upheaval attributed to the Coronavirus pandemic, with an average YTD return of nearly 46%; only CenturyLink (CTL) has seen its price decrease. The biggest standouts have been Fastly (FSLY), up over 300%, and Shopify (SHOP), up nearly 140% after being the top performer in the index during 2019. Names not in the top 15 performed somewhat worse, with an average YTD return of approximately 32%.

ISE CTA Cloud Computing Index (CPQ) Chart 2

In terms of market capitalization for the overall group, the average was $101.0bn, while the weighted average was $221.3bn. The median was only $11.3bn, however. This large skew results from the outsized market caps of Amazon, Microsoft, and Google – all in the vicinity of $1-1.5 Trillion (and to some extent, also Alibaba (BABA) at more than $500bn). Yet, the fat tail at the top of the size distribution does not necessarily mask a long tail at the bottom end, as only 5 constituents fall into a true “small-cap” designation with market caps less than $2.5bn, representing less than 5% of the total index weights. CPQ is still, ultimately, an index of mostly large-cap companies with a sizable mid-cap segment as well.

ISE CTA Cloud Computing Index (CPQ) Chart 3


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