“The cloud” has become a ubiquitous term. Whether talking about streaming the latest episode of the Kardashians or doing our taxes, it’s all happening online in “the cloud.” Most people take it for granted that all of these things just appeared one day to make life more convenient, but this migration has had consequences. The vast changes in the data centers and infrastructure needed to support such services have created massive investment and opportunity.
This week’s chart illustrates the anticipated explosive increase in the demand for cloud-based consumer storage. Traffic growth is growing for many reasons, including the use of multiple mobile devices and the desire to store information in a central location. Another consequence of cloud utilization is the increased computing demands placed on data centers. Streaming the Kardashians (and any other video) requires significantly more computing power than sending an email and in turn increases the workloads of data center servers. Cisco estimates that overall data center workloads will nearly double from 2013 to 2018; however, cloud workloads will nearly triple over the same period.
By any measure, the demand for cloud services will only accelerate in the years to come. This will not only present opportunities domestically but also globally, as more and more developing economies give rise to a growing middle class and promotes infrastructure development that enables more widespread Internet access. The opportunity has already created over 32 publicly traded cloud companies with individual valuations north of $1 billion. Since 2011, the public market capitalization of cloud-based companies has grown from $40 billion in 2011 to $178 billion in 2015 (3/27/2015 – BVP Cloud index).
Key Takeaway: Drivers of cloud computing include data center virtualization, mobile adoption, and the increasing expectation of seamless user experiences. As these trends continue and devices get smaller (and contain less physical storage), the demand for cloud based storage solutions will likely to accelerate. Cisco projects that by 2018, 50% of consumer internet users will utilize a personalized cloud based storage solution. Investments in the infrastructure that powers the cloud will continue to disrupt the traditional digital storage market. Venture capitalists are well positioned to capitalize on this trend while it is still in its infancy. Identifying early-stage companies with the potential to transform the interaction between mobile devices and the infrastructure that is essential for the continued growth of “cloud” computing might not grab headlines like many other consumer-based applications have, but such investments could lead to returns that are just as attractive.
The material provided here is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management.
This material is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
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