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By Christopher Gannatti

The drawdown in many stocks focused on cloud computing software has been, in a word, unbelievable. In basically one months time, from April 11 through May 11, the BVP Nasdaq Emerging Cloud Index (EMCLOUD)a group of cloud-oriented companieshas lost roughly 30% of its value.

In figure 1, we see:

Figure 1: The Drawdown in Cloud Computing Share Prices Has Been INTENSE

Knowing this, the primary question comes back to the following, which we can simplify into two outcomes:

While we are never able to view the future with certainty, the evidence that we can interpret today would tend to indicate that outcome #2 has a higher probability of becoming true.

The big players are still growingFAST.

One of the risks we monitor in cloud computing regards the biggest players shifting from engines of growth to something more like utilitiesthe concept being that everyone able to adopt cloud computing has done so, so the future growth stabilizes.

While it is true that not every cloud-focused company is involved in M&A, even amidst the share price performance turmoil of 2022, companies are still active.

Cloud Computing Stocks Are Still Delivering Elevated Growth Rates

Conclusion: The Cloud Business Model Is Still Robust Amid Substantial Lowering of Equity Valuations

Some of us might have thought that there has been so much discussion about Western central banks shifting policy from extremely easy to extremely focused on mitigating the risk of runaway inflation that this must have been priced into equity markets. The recent behavior of software-oriented cloud computing companies would tell us something differentadjustments are clearly still being made. Our bottom line is thisthese subscription-oriented businesses are still largely growing their revenues, even if that growth is nowhere near what would have been seen during the pandemic period in 2020. Those with a time horizon of the next few months may have an extremely uncertain outcome. Those with a time horizon in the range of 5, 7 or 10 yearsas long as the cloud business model continues to find favormay see this downdraft as an interesting opportunity.

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Christopher Gannatti began at WisdomTree as a Research Analyst in December 2010, working directly with Jeremy Schwartz, CFA, Director of Research. In January of 2014, he was promoted to Associate Director of Research where he was responsible to lead different groups of analysts and strategists within the broader Research team at WisdomTree. In February of 2018, Christopher was promoted to Head of Research, Europe, where he will be based out of WisdomTrees London office and will be responsible for the full WisdomTree research effort within the European market, as well as supporting the UCITs platform globally. Christopher came to WisdomTree from Lord Abbett, where he worked for four and a half years as a Regional Consultant. He received his MBA in Quantitative Finance, Accounting, and Economics from NYUs Stern School of Business in 2010, and he received his bachelors degree from Colgate University in Economics in 2006. Christopher is a holder of the Chartered Financial Analyst designation.

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Cloud Computing: Are Share Prices Heading Toward Zero, Or Is It An Opportunity To Buy? - Seeking Alpha