- Facebook, Amazon, and Google are currently on fire, and Netflix is again starting to catch on.
- These are the biggest users of the cloud, not just the biggest sellers of cloud capacity.
- Look for the next big thing among cloud customers.
Maybe it’s time for a new acronym. Or maybe it’s time for investors to understand why FANG was created, what it means, and how to use it to find better investments.
What the FANG stocks have in common is that they are all great users of the cloud. As Red Hat (NYSE:RHT) CEO Jim Whitehurst has said, the cloud is just enabling technology. You wouldn’t see huge profits in the people who developed standard screws and bolts in the early 19th century. You won’t see big profits in the cloud “arms merchants” of today.
Instead, the big money comes from using the cloud to create products and services that never existed before. Facebook invested heavily in its cloud, but it’s the social network that makes the money. The same with Amazon’s AWS cloud and its store. The same with Netflix’ Open Connect, its content delivery network. The same with Google’s search services.
What you are looking for as a cloud investor, in other words, are new, scalable services that use cloud to offer things that never existed before. Like the Facebook social network, the Amazon store, the Netflix movie house or the Google search engine.
General Electric (NYSE:GE) thinks it may have the next big thing with the Internet of Systems. Forget things, even big things like jet engines. Airplanes are systems, air traffic control is a system, a city or region’s transportation net is a system. By the same token a home is a system, your body is a system, and a factory is a system. With intelligence monitors on all moving parts, and with a cloud’s power controlling the whole, you make the system more efficient, more intelligent, and easier to use.
IBM (NYSE:IBM) scientists have talked about this a lot, but they haven’t worked on solutions the way GE has. Vmware (NYSE:VMW) has contributed the necessary software for what GE wants to do, through its Pivotal unit, which GE has invested in. GE has also begun advertising its intentions, a series of commercials starring a young computer programmer describing it to an uncomprehending world.
Maybe Microsoft (NASDAQ:MSFT), which finally had the break-out quarter everyone was looking for from CEO Satya Nadella, also belongs on the list. Microsoft uses its Azure cloud to sell software tools, and tools aren’t the optimal play here. But perhaps it’s the Home Depot (NYSE:HD) of the cloud.
The reason why “unicorns” like Uber and Theranos still draw a crowd is the hope that they can do what these other companies can do, use the cloud to revolutionize whole economic sectors, transport in Uber’s case and medicine in Theranos’. But the general lesson is that the cloud is a winner-takes-all market, that if you win in the cloud you win on a scale never before seen in the history of business.
FANG, in other words, is biting back, and it’s looking for new victims. You will find your next big investment idea by looking at the cloud’s biggest customers.