Following an utterly forgettable 2022 in which the ISE CTA Cloud Computing Index plunged 44.7%, cloud computing stocks and the related exchange traded funds are on the mend in 20223.
As of June 29, that index is up 30.3% year-to-date. It’s reasonable to surmise that the artificial intelligence (AI) boom is contributing to the cloud stock rebound. Indeed, there’s ample evidence to support the notion that AI and cloud computing are another example of an intersection between two disruptive technologies.
“On existing cloud computing platforms, AI techniques deploy to deliver extra value. SaaS (Software-as-a-Service) companies incorporate AI technologies into larger software packages to give end-users more functionality,” according to DataCenters.com.
As is the case with AI itself, the AI/cloud convergence is in its infancy, indicating there could be attractive runways for growth ahead for the ETFs that efficiently provide exposure to both concepts. Here are a few to consider.
First Trust Cloud Computing ETF (SKYY)
The First Trust Cloud Computing ETF (SKYY) is oldest and largest cloud computing ETF and it follows the aforementioned ISE CTA Cloud Computing Index. The $2.84 billion ETF holds 64 stocks, including Microsoft (MSFT), Alphabet (GOOG) and Adobe (ADBE). Those firms among the masters of the AI-meets-cloud universe. Amazon (AMZN), another SKYY holding, is part of that conversation.
The parent of Amazon Web Services (AWS), the largest cloud computing company, is making inroads in the burgeoning generative AI space, recently announcing its own related product dubbed Bedrock. Importantly, the SKYY holding sees synergies between AI and the cloud.
“You need the cloud for generative AI – almost nobody is going to want to afford or have the operational excellence and security required to do this stuff themselves,” said CEO Adam Selipsky at a conference earlier this week. “It really all becomes part of a single data strategy, and it's incumbent upon us — our customers need us to have great generative AI. But if we do our jobs well, then it'll really be an enabler of the next wave of things that our customers want to do in the cloud.”
VanEck Semiconductor ETF (SMH)
Semiconductors are the backbones of a variety of innovative, including AI and cloud computing, making the VanEck Semiconductor ETF (SMH) a relevant inclusion here. As an AI/cloud ETF, SMH is a potentially attractive proposition because both industries still have room to exponentially grow, boosting demand for chips along the way.
In its new whitepaper “Silicon Alchemists & AI: 2023 Outlook for Semiconductors,” VanEck examines the fourth industrial revolution, which is afoot. That includes myriad disruptive technologies, including AI and robotics, and several others that are both chip- and cloud-dependent.
Semiconductor evolution leads to increased computing, which is helpful to the cloud. Then there’s the role AI plays in driving evolution in the chip industry.
“AI is not just benefiting from semiconductor power; it has emerged as a significant driving force in the evolution of the semiconductor industry,” according to VanEck. "AI is enhancing efficiency and profitability within the sector by redefining chip designs, identifying defects, optimizing processes, and predicting chip failures. And there’s more to the story—AI is catalyzing the creation of a new lineage of chips tailor-made for AI’s distinctive requirements and needs."
Spear Alpha ETF (SPRX)
An underappreciated avenue for accessing the AI/cloud intersection, the Spear Alpha ETF (SPRX) is meriting of its place on this list because its littered with cloud and AI-relevant stocks. Not to mention the actively managed also features exposure to automaton companies – another AI/cloud-heavy industry – as well as several other disruptive growth industries.
At the holdings level, SPRX’s AI and cloud credentials include Nvidia (NVDA), Snowflake (SNOW) and Amazon, among others. Those companies and others could be at the forefront of leveraging AI to drive down cloud costs.
“Compared to on-premise data centers, cloud computing has the obvious advantage of reducing the costs associated with hardware administration and maintenance,” adds DataCenters.com. "With AI projects, upfront costs can be burdensome, but businesses can access these technologies for a monthly subscription in the cloud. This subscription-based usability makes R&D costs more affordable."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
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