One of the enduring investment themes over the past decade has been the rise of software-as-a-service (SaaS) and cloud-based computing platforms.
The thematic has extended to Australian markets, with a number of ASX-listed success stories which have posted huge gains in that time.
That growth has given rise to some differing point of view about whether valuations looked stretched or the investment thesis has further to run.
But for Jason White, managing director at US-based fund manager Artisan Partners, the sector still presents a compelling medium-term use case.
Speaking at last month’s JANA investment conference in Melbourne, White backed up his view with some interesting data points that illustrate the broader trends taking place.
For starters, he pointed to this chart which shows the ratio of cloud sales by the major providers, as a percentage of global tech spending:
There’s some big numbers involved — gross cloud sales by Google, Microsoft and Amazon amounted to around $US50 billion last year, led by Amazon with $US33.5 billion.
And despite those huge top-line figures, combined annual sales growth for Microsoft and Amazon is still tracking at around 50 per cent. The second takeaway is that they still make up just three per cent of global tech spending of $US3.76 trillion.
“I think with software key point is that we all hear about is the growth of cloud computing. But the data indicates that we’re going to be talking about the duration of that trend for at lease another couple of years,” White told Stockhead.
“Not all of that $US3.8t is accessible, but a big chunk of it is. And in that context and with those type of growth rates, I think it’s hard to say we’re late in the trend. There’s still compelling reasons why organisations are adopting this.”
The second chart White highlighted was derived from the recent JP Morgan survey of global Chief Information Officers (CIOs) — compiled from the largest 2,000 companies in the world:
The data shows that currently, around 80 per cent of respondents still manage their data using on-site storage technology, as opposed to an external cloud-based service.
But based on the results of the survey, that framework is likely to change. In fact, over a five-year time frame the world’s biggest companies will shift towards the cloud.
“You’ve got respondents saying they’re going to increase spending materially over next five years. It’s not an absolute “yes or no” guide, but it’s another indicator that we’re still relatively early in this trend,” White said.