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Cloud computing - an unheralded tech success

25 March 2019 |Insights
Learn how unlocking the value of your investment portfolio using a margin loan can help build wealth and achieve your financial goals on a chart background.

Cloud computing - an unheralded tech success

25 March 2019 |Insights

Michael Collins
Investment Specialist, Magellan Asset Management Limited

A diversified portfolio can spread risk both through investing in different asset classes, and within asset classes - for example, through holding stocks from a diverse range of industry sectors. Leveraged offers gearing into many segments and markets - both domestic and international, including established and up-and-coming technology industry opportunities such as cloud computing.

While you may be familiar with the term 'the cloud', do you know what it really means - or how you can invest?

Essentially, the cloud is just a metaphor for the internet. The dictionary definition of cloud computing is the practice of using a network of remote servers hosted on the Internet to store, manage, and process data, rather than a local server or a personal computer.

This means that for individuals, a benefit of using the cloud is that as remote servers handle much of the computing and storage, you don't necessarily need an expensive, high-end machine for the same outputs.

Some background, opportunities and risks

In mid-2017, computer scientists at Google’s security-research unit Project Zero helped discover two 20-year-old flaws in computer chips that were so widely used it meant just about every computer and network in the world was vulnerable to hacking.

Among those vulnerable to the microprocessor flaws were the providers of cloud computing, those that offer IT resources from data centres over the internet. By the time the flaws were made public in January 2018, however, the major cloud-service providers such as Amazon, Google and Microsoft had secured their systems and enhanced their reputations for competence and security.

The ability of cloud service providers to remind people of their worth when such a vulnerability emerged is among reasons why the practice of cloud computing has become a US$176 billion industry over the past 15 years or so.

The sharing of remote IT resources is expected to grow in coming years. Morgan Stanley estimates that by 2021, businesses will send 44% of application workloads to the public cloud - more than double today’s figure of 21%. US consultancy Gartner predicts the global cloud services market will reach US$278 billion by 2021. All up, cloud computing is proving to be a rare part of technology; it is surpassing predictions of its usefulness and doing so in a relatively trouble-free manner in an era when much technology is shrouded in controversy.

To be sure, any large, fast-growing industry is bound to stir up some issues. Data centres can have technical problems that put them temporarily out of service. Their large energy demands could attract criticism, although cloud computing is a more efficient use of resources at a society level and cloud providers are adept at maximising energy efficiency. Issues about ‘data sovereignty’ have prompted some governments to force cloud service providers to contain data within country borders. No part of the internet, including cloud data centres, will ever be fully secure. The European banking regulator worries that the outsourcing of core banking systems to the cloud is a systemic risk. Increasing market dominance by the likes of Amazon and Microsoft could attract the attention of anti-trust regulators.

It must be said too that for all the benefits the cloud offers not everything will shift to data centres. Cost-wise, for instance, cloud computing might be better suited to variable volumes of data processing. Certain core operational workloads might stay on the premises, as might critical IT and customised processing. The same goes for data that must stay on site for compliance reasons. Another brake on cloud growth is that applications such as autonomous driving still benefit from having computing resources closer to the data source.

But these caveats pale next to the bigger trends. Favourable economics, technological advancements and security concerns will prompt businesses to outsource more IT to the large data centres that comprise the cloud. In the foreseeable future, cloud computing is likely to fulfill upbeat expectations of its benefits without stirring up too much trouble.

For information on how you can utilise your margin loan account to gear your views, please contact your Adviser, Relationship Manager or call Leveraged on 1300 307 807.

This information is correct as at 25 March 2019.

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Gearing involves risk. It can magnify your returns; however, it may also magnify your losses. Issued by Leveraged Equities Limited (ABN 26 051 629 282 AFSL 360118) as Lender and as a subsidiary of Bendigo and Adelaide Bank Limited (ABN 11 068 049 178 AFSL 237879). Information is general advice only and does not take into account your personal objectives, financial situation or needs. The views of the author may not represent the views of the broader Bendigo and Adelaide Bank Group of companies (“the Group”). This information must not be relied upon as a substitute for financial planning, legal, tax or other professional advice. You should consider whether or not the product is appropriate for you, read the relevant PDS and product guide available at www.leveraged.com.au, and consider seeking professional investment advice. Not suitable for a self-managed superannuation fund.

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