Cloud Stocks Lost Popularity as Investors prefer Safer Bets

In 2020, cloud stocks jumped as the speedy and unexpected transition to remote work forced companies to adapt to the new reality. From Zoom for video chat and Twilio for text communications, large companies made enterprise-wide purchases of new technologies. The situation started to change in 2021.

Investors started to sell tech stocks and this process created serious problems for cloud companies. While the Dow Jones Industrial Average was trading just below a record as of May 10, an index of cloud-computing companies fell to its lowest level in six months. The WisdomTree Cloud Computing Fund, consisting of 56 stocks, declined 2.4%.

The tech sell-off started several months ago, more precisely in February. The process has picked up steam in the last couple of weeks. The main topic of the market rotation is the rising interest rates, which traditionally hurt high-growth companies. There are other factors as well, such as a move into stocks that tend to outperform in periods of inflation.

For the year, the cloud index fell 15%, compared with Dow’s 14% gain. Also, the Nasdaq Composite rose 4%.

Cloud stocks and main findings

Global X said its cloud-computing ETF fund flows increased by $600 million in 2020. Its cloud-computing ETF fund fell by $112 million this year through April.

Analysts attributed the stock declines to the second-quarter forecasts, which were weaker than some people expected.

ServiceNow declined 15% this year as of May 10, and Twilio fell 13%. The cloud stock with the steepest decline this year is Fastly, as it lost more than half of its value. Fastly, which speeds content delivery to websites, also reported a disappointing forecast last week.

Other big decliners in 2021 are cloud database vendor Snowflake and Coupa, a provider of  spend management software. Both stocks fell by more than 30% this year and still have among the highest price-to-sales ratios in the cloud index.