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Cloud Computing Looking Ominous for 2014

Stocks in this article: AAPL AMZN CA COST GOOG HPQ IBM KR MSFT ORCL RAX RHT STX WDC WMT YHOO

NEW YORK (TheStreet) -- The key technology trend of the last few years has been the barbell effect. The two edges of the market have grown, and the center has narrowed.

The computing "middle class" of PCs and servers are being rendered obsolete, on the one hand by cheap mobile devices like phones and tablets, on the other by scaled cloud environments.

Companies that lived in that market center -- like Hewlett-Packard (HPQ - Get Report), Microsoft (MSFT), Oracle (ORCL) and IBM (IBM) -- have been hard-pressed to scramble out of the way of device and cloud giants like Apple (AAPL), Google (GOOG) and Amazon (AMZN).

I've written about IBM's problem recently. And the problem is not going away; if anything, it's getting worse. While 2013 was a year of struggle for Big Blue, 2014 will be its annus horribilis. The company that emerges from the struggle will be far, far different from the one that went into it.

But none of this is a secret. Technology investment is about the next trend.

And the next trend is consolidation within the cloud.

We are already starting to see it. Companies like RightScale, created to arbitrage and manage competing cloud services, are laying off workers because there just aren't that many good choices. Rackspace (RAX), the OpenStack hosting company valued at $76.31 per share at the start of 2013, has sunk to $37.21 as of the market close on Jan. 28.

If there are fewer viable cloud companies, then there are fewer viable merchants to the cloud. Software companies like CA (CA) and even Red Hat (RHT) should have a hard time. Seagate (STX) and Western Digital (WDC), which supply hard drives, are starting to roll over to the downside.

Big gains are getting harder to find in tech as more companies avoid the public markets altogether. DeepMind won repeated rounds of venture funding and was bought this week by Google for $400 million. The same thing happened last year with Tumblr, bought from private investors by Yahoo! (YHOO) for $1.1 billion.

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