Sunshine in the Clouds

NEW YORK ( TheStreet) -- You can bet that when "the cloud" shows up in consumer advertising, as in the Microsoft ( MSFT) ads that say, "To the cloud...," it's just the tip of the iceberg. For years software firms have been using cloud-based architecture to enhance computing and reduce costs.

But it's reached a tipping point of sorts, and the projections are getting that "hockey stick" quality that investors know and love. For instance, according to a March 2012 International Data Corporation study, the cloud computing sector will generate approximately 14 million new jobs and $1.1 trillion in profits by the year 2015.

Mind you, that date is just around the corner. We should all be mindful, too, of the fact that the IDC report was sponsored by Microsoft, which has a vested interest in promoting the cloud business.

Still, if we only get part of the way there, I'll be a happy investor. As I've written many times, companies at the forefront of innovation and new technologies -- even if they are decidedly non-tech such as food manufacturers or retailers -- tend to have a significantly higher returns than the market average. Accordingly, we like and own VMware ( VMW) and Citrix Systems ( CTXS), two of the smaller and more aggressive names in the space.

Further, IBM ( IBM), Oracle ( ORCL) and Microsoft are growing their cloud business. Companies such as these present an opportunity and a risk as well.

As "older" technology companies, they grew up on older, in situ, computing. This legacy business is lucrative and evolving. Therefore, they must balance the needs of existing and profitable customers while developing cloud solutions for these and new customers to grow into.

It's a tricky balancing act, but Oracle has been doing it very well, and shareholders have been rewarded with a year-to-date return on ORCL shares of approximately 26%.

However, there are risks, too. As Canaccord Genuity software analyst Richard Davis said following the most recent earnings report, "We still struggle with the future impact of the 300 or so private cloud companies that we know, almost all of which are aiming at Oracle."

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