Money Falling from the Cloud

09/29/2010 1:00 pm EST


Michael Murphy

Former Editor, New World Investor

Michael Murphy, editor of New World Investor, explains in a Q&A why cloud computing is catching on, and he names two stocks that could profit from its continuing growth. Michael, there’s been a lot of talk about cloud computing. Can you tell us what it is and why it’s important?

Murphy: Cloud computing basically means moving all of the computers that you used to own out into somebody else’s ownership and you let them worry about maintaining them and keeping all the software up to date. And they give you access to the computers and to the software that you need to run your company.

Q:  So, if you have a Yahoo (Nasdaq: YHOO) or Google (Nasdaq: GOOG) email account, you’re basically accessing it on their servers.

A:  Exactly right—that is the cloud. But now that’s happening for companies the size of Thomson Reuters (NYSE: TRI), for example, where they will contract out all of their computing power and then provide terminals or Web access to people to get to the various services that they sell. It has sneakily become a big business—about $68 billion in revenues this year [and] showing good, strong growth—and I think it will continue for many years.

Q: What about security? You’re basically giving control of all that sensitive data to somebody else and trusting that they’re going to have secure enough facilities to prevent hackers and others from getting access to it. 

A: You’re absolutely right. That is a huge issue when it comes to people making this move and these companies that provide the cloud services. Those kinds of companies need to get past that hurdle and show that they have higher security around their data centers—I mean literally higher security in physical security, redundant electricity coming into the place. They are actually bomb-proof buildings. They have better security than any individual corporation could possibly afford on its own, and they also have better Internet connectivity, so it is faster. 

Q:  Can you give us a couple of names? 

A:  Sure—SAVVIS (Nasdaq: SVVS) has gone above my Buy limit, but Internap Network Services (Nasdaq: INAP) is still below. These are companies that provide both the computing facility [and] the cloud facility, and work on speeding the Internet up for the customer. 

In other words, for [companies] to connect to their clients or to their sales offices around the world, [these two providers] do a lot of special things to find the best paths. So, the package that they offer people is very attractive compared to what a company could afford to do on its own. 

(SAVVIS closed above $21 Tuesday, while Internap closed below $5—Editor.) executive editor Howard Gold conducted this interview with Michael Murphy in the video studio at The San Francisco MoneyShow in late August. You can watch the video here.

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