Cloud Services companies are on a roll

In a shift from the last couple of years, cloud services providers are witnessing a surge in their stock prices, thanks to changing market trends and President Trump’s corporate tax breaks. The Trump administration’s reduction on taxes gives corporations greater spending power to acquire new capabilities and expand their services.

More than 25 cloud computing services providers valued at over a billion dollars have seen their stocks rise by 40% this year, well ahead of S&P 500 Technology Index’s 14% increase. Confidence in the subscription based business models and their current sustainability have resulted in a rather bullish market for stocks in this domain.

The older heavyweights of the enterprise software market such as Oracle and SAP would charge millions of dollars for multi-year contracts, not to mention collect maintenance fees.  The newer cloud-based service providers charge less up-front, but garner greater revenues over a period of time through higher rates of customer retention. Richard Davis, an analyst who covers enterprise software at Canaccord Genuity says, “When you buy cloud or subscription software from a vendor, you can buy exactly how much you want: per person, per-employee, and pay as you go.” He further adds, “It is a good business model and demand is strong, because everyone wants to buy software to make their companies efficient.”

However, the platforms used by the new generation of cloud computing companies could face the uncertainty of their platforms turning into their competitors. Since nearly every one of these vendors bank on AWS, Microsoft Azure and Google’s cloud to host their data, there is always the danger of these platforms turning into competitors themselves.