Cloud computing stocks have been one of the biggest beneficiaries of the coronavirus pandemic. As companies shift their business strategies online and people shift to working remotely, the demand for cloud software and solutions has accelerated quickly.
Cloud stocks have stayed ahead of not just the broader market, but the tech sector as well. Over the past month, however, the tide seems to have turned. No longer are cloud stocks heading up. They've begun turning sideways, capped off by a 6% drop off of their recent highs.
So, where do cloud stocks go from here?
I think they're headed sideways for a little while. The short-term momentum appears to have ended and that might actually be a good thing.
Cloud computing stocks are probably due for a pause and could use a short period of consolidation. The sector trades at around 6 times book value and 4 times sales, so it's by no means inexpensive. Last week's blowoff, which made it one of the worst performing sectors, could be an indication that investors have had enough for the short-term. The continuation of last week's downward move into this week suggests there's some strength in this consolidation.
Long-term, however, this sector still looks good. The coronavirus has certainly tilted the global economy to favor cloud stocks and there's almost certainly an increased demand for cloud services even after things begin returning back to normal and people begin heading back to the office.
Many individuals and businesses have already shifted how they do business and it's unlikely that they'll be going back.
SKYY's current price of $75 may not yet present the best entry point for investors looking to add a position, since I believe there's more consolidation to go. But long-term, I don't think there's any reason to believe that there's anything but big growth potential still ahead for this sector.
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