The Cloud Spending Slowdown Won’t Last as AI Speeds Up

Data center

This earnings season, many companies with large exposure to cloud storage have reported weaker revenues. That’s been a big driver for a selloff, even if overall earnings have generally been bullish.

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  • That’s creating a short-term opportunity to buy a drop in these companies. After all, data needs only continue to rise. And companies that provide cloud services have more jumps in demand coming as AI programs continue to roll out.

    For instance, Google (GOOG) saw its largest one-day market cap decline ever following its latest earnings. Overall numbers were good, but revenues were a little light, particularly in the cloud space. That’s been in-line with a similar slowdown with other major cloud service providers.

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    Even with that big drop, Google has been firing on all cylinders. Revenues rose 15% last year, and earnings jumped 33%, indicating improving operational efficiency. And shares are still a relative bargain to many tech stocks today, trading at 23 times forward earnings.

    Action to take: Investors may want to buy or add to Google holdings here. Given the volatility, setting some cash aside for future opportunistic buys looks attractive as well.

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  • Plus, Google recently started paying a dividend, although the yield is on the low side at 0.4%.

    For traders, a rebound following the earnings report selloff is likely. The April $205 calls, last trading for about $4.10, could see mid-to-high double-digit returns depending on how quickly shares trend higher.

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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