The first half of 2022 had the worst start to a year since 1970
Investors have been moving out of tech broadly and into stocks that are considered safer bets. The first half of 2022 had the worst start to a year since 1970, but the broad-market indexes only reveal part of the pain many investors are experiencing right now.
The rotation out of tech stocks continues to hammer cloud companies the hardest, as investors sell out of last year’s best performers. Concern about rising interest rates, which have traditionally hurt high-growth companies, coupled with a move into stocks that tend to outperform in periods of inflation, such as financials, commodities and industrials.
“The move to cloud computing is only just getting started” - Adam Selipsky, AWS CEO 1
Software companies are increasingly moving to a software-as-a-service (SaaS) model where customers buy a subscription to a program instead of a one-time license. This generates recurring revenue for the software company.
Story of Zoom and The Airline Decline
Two years ago, cloud stocks soared as the speedy and unexpected transition to remote work forced companies to adopt products that could help their employees collaborate from afar and access data that was stored in physical data centers. From Zoom meetings large businesses made enterprise-wide purchases of new technologies 2.
The airline industry has been on the opposite end of fortune, suffering an unprecedented plummet in demand as international restrictions have shuttered airports. The world’s top airlines by revenue have fallen in total value by 62% in 2020, where are they Today in 2022 ?
| Airline Market Cap | Jan 31, 2020 | May 15, 2020 | Jul 8, 2020 |
|---|---|---|---|
| Southwest Airlines | $28.440B | $14.04B | $21.89B |
| Delta | $35.680B | $12.30B | $19.17B |
| United | $18.790B | $5.867B | $11.98B |
| International Airlines | $14.760B | $4.111B | $6.53B |
| Lufthansa | $7.460B | $3.873B | $6.99B |
| American | $11.490B | $3.886B | $9.15B |
| Air France | $4.681B | $2.137B | $3.01B |
| Total Market Cap | $121.301B | $46.214B | $78.72B |
| Source: companiesmarketcap.com 3 |
As with any up-and-down tech stock lately, opinions are divided on whether Zoom – which shot to prominence and popularity during the shut-in period of the coronavirus pandemic – is a bargain or a bust.
As CIOs and other IT leaders plan for their cloud usage in 2022, having a strong understanding of what’s myth and what’s reality will help form realistic expectations around cloud computing.
Take advantage of cloud
Clearly 2020 was a phenomenal year for cloud-computing companies as we entered that work-from-home (WFH) economy. I really think there is a misconception that as we reopen the economy, we are all going to stop using cloud-computing solutions, and that’s not really true.
Ongoing disruption to IT markets by cloud will be amplified by the introduction of new technologies, including distributed cloud. Many will further blur the lines between traditional and cloud offerings. The move to cloud is still just beginning. Only 10-15% of enterprise IT spending has moved to the cloud so far, and 20-30% of workflows.
In 2022, more than $1.3 trillion in enterprise IT spending is at stake from the shift to cloud, growing to almost $1.8 trillion in 2025, according to Gartner 4. Above all else, don’t believe the biggest myth about cloud — that you always save money by moving to it. This is sometimes the case, but there are many other reasons for migrating to the cloud. High growth stocks were crushed during this bear-market but many high quality businesses have now become reasonably valued 5.
No certainties in this business, but many growth stocks appear to have bottomed out. It’s tempting to avoid cloud stocks entirely and stick with recession-resistant plays in this growling bear market, but investors could be leaving a lot of money on the table by avoiding this high-growth sector. After all, the global cloud market could still grow at a compound annual growth rate (CAGR) of 15.7% between 2022 and 2030, according to Grand View Research 6.
What is the future of cloud
Stating “we’re all in” is not a strategy. Likewise, a plan to shut down the data center is not a cloud strategy.
Debunking these myths will be critical for organizations. The cloud strategy should be the foundation for the implementation plans. The cloud strategy needs to be comprehensive, explicitly stated and separate from implementation plans.
All business decisions, including those about cloud, are ultimately about money. Even if agility is the ultimate goal, cost is still a concern. Don’t assume you will save money unless you have done the hard work of honestly analyzing your situation. Utilize total cost of ownership (TCO) and other models on a case-by-case basis. Segment cloud into use cases. Cloud businesses are out of favour, but the runway is long, the future of Cloud is distributed and ubiquitous.
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External References
https://www.cnbc.com/2022/06/28/aws-ceo-says-the-move-to-cloud-computing-is-only-just-getting-started.html ↩︎
https://www.visualcapitalist.com/zoom-boom-biggest-airlines/ ↩︎
https://companiesmarketcap.com/airlines/largest-airlines-by-market-cap/ ↩︎
https://www.gartner.com/en/newsroom/press-releases/2022-02-09-gartner-says-more-than-half-of-enterprise-it-spending ↩︎
https://www.bloomberg.com/news/articles/2022-06-17/in-prevalence-of-selling-this-is-a-market-rout-without-equal ↩︎
https://www.grandviewresearch.com/industry-analysis/cloud-computing-industry ↩︎