4 Funds to Rally on Cloud Computing's Steller Growth (2023)

Image: Bigstock

Cloud computing has been booming since the 2010s. Businesses have been adopting and migrating operations to the cloud to get a competitive edge. The pandemic played a huge role in boosting cloud adoption in the past year, as the remote working trend forced organizations to shift computing power. This helped companies to distribute models over the Internet and facilitate employees in working from home.

Even with the robust growth in cloud computing, only 33% of the workload uses cloud technology, according to Dan Ives, senior technology analyst of Wedbush. However, Ives forecasts that by 2022, usage of cloud technology may hit 55%. And why not? Cloud computing services offer flexible costs, scalability, and efficiency. This has enticed companies that were earlier hesitant in transitioning to the digital space.

Per Gartnerforecasts, global end-user spending on public cloud services is expected to grow 23.1% this year to a total $332.3 billion, up from $270 billion in 2020. Driving the growth of cloud spending is emerging and cutting-edge technologies like containerization, virtualization and edge computing. As these technologies become more mainstream and businesses focus on rich data visualization, growth in the cloud space will continue.

Additionally, initial public offerings are boosting the cloud space. In April, UiPath, a cloud-based enterprise SaaS solution company, made its debut on the NYSE and rose 23% on the first trading day, bringing in $1.34 billion. On Oct 18, cloud storage provider Backblaze filed for IPO and could value it at around $1 billion. Backblaze targets smaller companies, providing them with cloud storage space currently offered by giants like Amazon.

According to Research and Marketsreports, the global market for cloud computing services is projected to reach $937.5 billion by 2027, at a CAGR of 17%, while cloud Infrastructure as a Service is expected to see a CAGR of 18.4% and reach $449.3 billion.

4 Top Picks

We have, therefore, selected four mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) and invest in cloud computing and related companies. These funds have returned more than 30% to investors on a year-to-date basis. In addition, the minimum initial investment is within $5,000.

We expect these funds to outperform peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also the likely future success of the fund.

The question here is why should investors consider mutual funds? Reduced transaction costs and portfolio diversification without several commission charges associated with stock purchases are primarily why one should be parking money in mutual funds.

Fidelity Select Technology Portfolio(FSPTX-Free Report) aims for capital appreciation. The fund invests primarily in equity securities, especially common stocks of companies engaged in offering, using, or developing products, processes, or services that will provide or benefit significantly from technological advances and improvements.

This Zacks Sector – Tech product has a history of positive total returns for more than 10 years. Specifically, FSPTX has returned 28.5% and 29.7% in the past three and five years, respectively.

FSPTX is a non-diversified fund with an annual expense ratio of 0.69%, which is below the category average of 1.05%. Some of the fund’s top cloud computing stock holdings are Nvidia, Microsoft, Cloudflare and Salesforce.

T. Rowe Price Global Technology Fund(PRGTX-Free Report) aims for long-term capital growth. The fund invests most assets in the common stocks of companies that its managers expect will generate a majority of revenues from the development, advancement and use of technology.

This Zacks Sector – Tech product has a history of positive total returns for more than 10 years. Specifically, PRGTX has returned 34.8% and 28.1% in the past three and five years, respectively.

PRGTX is a non-diversified fund with an annual expense ratio of 0.86%, which is below the category average of 1.05%. Some of the fund’s top cloud computing stock holdings are ServiceNow, Alibaba, Workday and Salesforce.

Janus Henderson Global Technology and Innovation Fund Class T(JAGTX-Free Report) aims for long-term growth of capital. The fund invests a majority of assets in securities of companies that the fund managers believe will significantly benefit from advances in technology.

This Zacks Sector – Tech product has a history of positive total returns for more than 10 years. Specifically, JAGTX has returned 27.5% and 28.8% in the past three and five years, respectively.

JAGTX has an annual expense ratio of 0.92%, below the category average of 1.05%. Some of the fund’s top cloud computing stock holdings are Microsoft, Tencent Holdings, Adobe and salesforce.com.

Franklin DynaTech Fund Advisor Class(FDYZX-Free Report) aims for capital appreciation. The fund invests primarily in equity securities, especially common stocks of companies that the fund manager believes are leaders in innovation and takes advantage of new technologies.

This Zacks Sector – Tech product has a history of positive total returns for more than 10 years. Specifically, FDYZX has returned 26.4% and 27.3% in the past three and five years, respectively.

FDYZX has an annual expense ratio of 0.60%, below the category average of 0.99%.Some of the fund’s top cloud computing stock holdings are Microsoft, Amazon, DocuSign and ServiceNow.